Returning confidence to life/risk
It has been a little over a year since Jim Minto retired as chief executive of big insurer TAL. It is 12 months during which he has taken the time to reflect on the shape of the Australian life insurance industry.
I am pleased to be asked to share some life industry perspectives just over a year on from my retirement.
The life insurance industry has been criticised in recent years but this is an industry that delivers such enormous value to the people of Australia.
One might think reading and watching recent media reports that the industry is in a mess but while there are some adverse issues highlighted there is also a great deal of positive value across the wider industry, especially for consumers.
Long-term sustainability is vital. Companies must ensure they balance the needs of customers, staff, business partners, governments, regulators, shareholders and others. Life insurance contracts are usually very long-term in nature and insurers must be around for many decades to deliver promises.
Consumer confidence is really important. It is hard to strive for Trust in the eyes of a consumer but the industry should always be doing the right thing by consumers in a sustainable way.
I have used some themes to point to recent changes.
Theme 1. Upsurge in customer access and value
We have seen an enormous increase in the number of people who have life insurance benefits and the in the claims paid out. Claims lifted a few years ago by about 50 per cent in number and value over a short period. The industry generally handled it well.
This coverage increase is good for customers and more claims will result over time.
Theme 2. Life Insurance is now predominantly issued through superannuation
Superannuation provides life insurance benefits to many who would not otherwise have it. It is over half the insured benefits across the industry now. I compliment the role of the Superannuation Fund trustees in increasing this access and increasing the amount of the benefits.
Many members understand this model and engage actively with their insurance in superannuation. This trend will increase and many advisers today also place life insurance through superannuation. Another positive benefit for consumers and it is working well.
Theme 3. Payout ratios
The percentage of claims dollars paid relative to premiums has increased significantly and is a good measure of customer value. I believe this is higher in the past few years than in the prior three decades.
This is very good for customers once again.
It is a measure of customer value and industry efficiency. It has been influenced especially by the growth in life insurance through superannuation.
Theme 4. Regulatory oversight of advice
In all parts of financial services, advice is being heavily scrutinised.
It is important consumers can trust advice especially when we have so much system and tax complexity, compulsion via superannuation and retirees looking to commence retirement income strategies. The days of a sales led industry are long gone.
Advice is a profession and standards and consumer expectations will continue to rise. In life insurance we have had reviews around misaligned incentives and the new life framework provides balance.
The process has however been hard, with political involvement and lots of media commentary. The industry will now move on. The next few years are important.
Theme 5. Expansion of benefits
Contrary to recent publicity there has been a large expansion in benefits over the last 10 years.
Policies have continued to have more benefits added and the regulator the Australian Prudential Regulation Authority (APRA) has warned about the financial implications of this trend. Make no mistake this was a huge consumer benefit and we saw more claims with higher payouts also.
New policies became cheaper and more generous. APRA warnings that these benefits were not being properly priced were with hindsight correct.
The life industry paid the cost of this in losses but consumers gained better policies and claims payouts.
Expansion of benefits is good for those who can afford these policies provided it is properly priced and changes are not pointless or valueless.
Theme 6. Legacy policy upgrading
Older policies tend to have less medically up to date definitions but to increase all benefits retrospectively will result in immediate higher prices as those benefits will result in more claims.
Medical technology advances all the time and life policies are protected for the customers when they are bought.
When the Government adds new drugs the health budget has to pay the costs. When health insurers cover wider and new treatments this has to be paid for and prices rise. The life industry has been lobbying for a new framework to allow legacy policy upgrading. Core to this is placing the customer interests foremost.
Some people can't afford more expensive policies. At claim time everyone wants the more generous policies.
Reinsurers and insurers need more flexible contracts to allow this rather than limiting changes to older policies. This area needs to be an industry focus to improve consumer fairness and simplify older policies.
Theme 7. Code of Conduct
This was identified within the life industry and the Financial Services Council (FSC) as a priority several years ago and is being actioned. APRA also in recent years has required every insurer and super fund to have a published claims philosophy.
This is so customers and claimants understand how their claims will be dealt with. Completing the Code of Conduct is very important.
Theme 8. Skills, experience and capability
The industry has struggled to recruit and train staff to deal with the significant growth in customer numbers, policies and claims. This continues to be a priority.
Theme 9. Staff and management measurement
If a person is fairly entitled to a claim under a policy then my experience is they get paid willingly by insurers and superannuation funds.
Good customer service and engagement measures need to have prominence in staff KPIs or incentives.
How customers are treated is important as is the outcome. Recent media has embarrassed good staff throughout the industry and it is not a broad reflection of all behaviours.
To sum up
The reputation of the life industry is damaged and needs to be built anew but the overall state of delivery of benefits and value to consumers by the life industry is positive.
I have highlighted more needs to be done around the Code of Conduct, aligning staff incentives and updating older policies.
The past five years especially have seen a huge uplift in consumer value but consumer confidence needs to be earned through delivering very good service and policy value to customers.
The industry must act sustainably in all it does. I am proud to have been part of this industry and I know it can continue to evolve and earn that consumer and wider stakeholder confidence.
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