Life houses to give planners full attention

Financial planners and advisers who offer risk products to their clients can expect to see and hear much more from life insurance groups in the coming months.

The reason for this is that senior executives from 15 of Australia’s life insurance houses have indicated that providing product and business support to financial planners is an area of key importance.

Their attitudes have come to light in theGerling Life Reinsurance 2002 MarketEvaluation Survey, which asked senior executives across a range of roles to outline the major areas of their business that will dominate operations over the next 12 months.

Given the recent changes implemented under the Financial Services Reform Act (FSRA) and the ongoing costs associated with owning distribution, it comes as no surprise that executives feel the need to better service those at the end of the product chain.

The evidence of the level of importance attached to distribution is that 64 per cent of those surveyed stated that distribution is becoming more powerful and would be one of the major industry changes over the next five years.

VIEW ALL

View all

This is backed up with only 14 per cent stating that an increased emphasis on direct distribution would be a major change and only 21 per cent stating that technology related delivery would fall into the same category. It was a different story last year, when 79 per cent of executives said technology would play a major role in the next five years.

Gerling assistant general manager Steve Vincent says the reason for the greater emphasis on distribution, a trend throughout the survey, was due in part to the FSRA.

However, he says the greatest driver for the focus on distribution support has been the changing nature of distribution over the last few years and a growing realisation among life houses that a tied advisory force is only one way of distributing products.

This was also borne out in the survey, with senior executives responding that direct ties to distribution were of less importance as a competitive advantage for a company. Only 29 per cent of those surveyed this year said it was an advantage, compared with 57 per cent in 2001.

“Distribution is not being seen as something that belongs to life insurance groups anymore. Rather, the relationships are with independent planners and life insurers can only supply support mechanisms without influencing the direction of those planners,” Vincent says.

This supplying of support services was viewed highly, with 57 per cent of senior executives also stating that providing support would create a competitive advantage. This figure is up from 14 per cent from last year’s survey.

But that is not to say that life insurance groups are yet to access the independent or third party planning market. A noticeable trend has already been set, with 86 per cent of life insurance groups already distributing product through third party planners, according to the survey.

And it’s these planners that life insurance groups are also keen to keep on side in the future, with the ‘twisting’ or ‘churning’ of business rated by executives as having the highest negative impact on profit when it comes to third party distribution.

In the 2001 survey, the highest negative impact was felt to have come from upfront commission.

The survey also found that the price of insurance products remains a non-issue among the majority of senior executives surveyed, with only 14 per cent regarding it as an advantage, a statistic which has remained unchanged since last year’s survey.

Vincent says this move away from price and towards ensuring there is less ‘churning’, is due to the current state of distribution, which has gone from thousands of individual planners towards the larger dealer group model.

“For risk houses this is very important because if a company cannot get onto or stay on the recommended list, then access to hundreds of planners is cut off or restricted. Given the continuing pressure on product and commoditisation, the obvious way to stand out is supporting products and those who sell them,” he says.

“It is like they have drawn a line in the sand and said we are good at the core issues of product manufacture and support, we can’t control distribution and FSRA has changed the landscape we once worked in, so these are the options to pursue.”

Adding weight to Vincent’s comments is the fact that more than 60 per cent of senior executives identified the three areas of product development, underwriting and claims management, as crucial in the coming year.

However, distribution through the Internet and internal planners were seen as less key areas. The Internet has fallen out of favour with many groups, with only 14 per cent of executives stating it would have a significant impact on sales, dropping by over half from last year when 36 per cent stated the Internet had a role to play.

Internal salaried advisers came under the microscope because of the cost of having the planners on board, as well as their level of success in ensuring the continuance of business with the life company that employs them.

Senior executives surveyed highlighted business discontinuance rates, as well as the total cost of distribution as the major areas likely to have a negative profit impact for business generated through the internal adviser distribution channel.

But these questions are also coming at a time when the industry faces other competitive pressures, including a decrease in the number of players, with 93 per cent of life insurance executives stating that they expect the market to face further rationalisation.

Vincent says rationalisation in the last decade has led to a one-third decrease in the size of the industry and more is likely, as the industry embraces the idea that big is better.

So, given that senior executives have divided the world between what they feel their company can do for advisers and what they feel advisers can do for them, will the survey results in 2003 indicate many of these things coming to pass?

Vincent says it is difficult to tell since the data is collected for the 2001 calendar year and therefore reflects many of the concerns current during that time.

However, he says that over the four years that the Gerling survey has been conducted, despite some of the gloom in the life industry, many executives continue to remain upbeat.

“It is unusual because if you ask the industry how it will go, answers are mixed with some potential negatives. However, if you ask an individual company how their profits will go, their future will always be superior than that of their competitors.”