Price hikes on the risk agend

Risk companies will be focusing more on product design and price with disability income products, says Gerling Global Life general manager Brian Sussman.

The Gerling 2002 survey of risk companies revealed that the majority of respondents highlighted increased pricing in disability income as the major product initiative during the next three years.

The further growth of indemnity style products and withdrawal of indemnity style contracts were the next most likely product initiatives. A decrease in prices was not considered a likely product initiative over coming years by those surveyed.

In the trauma product category, those surveyed saw increases in price and changes to definitions as highly likely over coming years.

In the TPD category, the liberalisation of definitions and price movements either up or down were seen as the most-likely product initiatives.

Price reductions were seen as the most likely product initiative in term insurance by those surveyed. Changes in commission levels and structure were also thought to be likely by respondents.

“We are seeing the removal of overly generous and unsustainable benefits in the area of disability and trauma products with a real focus on risk management,” Sussman says.

“Underwriting and claims management are improving, which means if we get issues right, especially on disability, these products will be sustainable for consumers, distributors and insurers alike.”

The survey found that 69 per cent of companies had changed their premiums in the past 12 months with both increases and decreases in some product categories.

In the disability category, premiums have increased by anything from five to 30 per cent during the last 12 months. Trauma saw smaller increases ranging from two to eight per cent.

Changes in TPD prices were more varied, swinging from a nine per cent decrease by some risk companies to a 25 per cent increase by others.

Term was also a volatile market in premium movements with a 17 per cent reduction from some risk companies and a six per cent increase by others.

“These figures confirm a continuation of the trend of the last two years and reinforces the thought that some heat has come out of price,” Sussman says.

“What we still see in term products — which are a very simple commodity — is that the prime differentiator will be price.”

He says where a product is price-sensitive, companies will look at becoming more competitive on service as a means of distinguishing their products from competitors.

In the disability income category, most risk companies (60 per cent) thought product features and benefits were the most important competitive advantage.

Claims management philosophy was seen as the next competitive advantage (57 per cent) followed closely by sustainable products (52 per cent). Commissions (19 per cent) were ranked last.

It was a similar situation with trauma products.

The biggest competitive advantage was product features and benefits (67 per cent), however good definitions (52 per cent) was seen as the next advantage by those surveyed.

Commissions were ranked last (22 per cent), a similar position with TPD (24 per cent) and term products (24 per cent).

In the TPD product category, product features and benefits (45 per cent) were ranked only just ahead of underwriting philosophy (43 per cent).

Price (52 per cent) was deemed the competitive advantage in the term product category. Again underwriting philosophy was ranked highly by 48 per cent of those surveyed, followed closely by service (43 per cent).

Sussman says the focus on core product manufacturing capabilities, rather than distribution, has been confirmed by this year’s survey.

“There is particularly an expectation that companies will be less involved in distribution as they see themselves now as manufacturers and service providers,” he says.

“With changes stemming from FSRA, this trend will continue and companies will have to focus on the quality of service provided to distributors.”

“This means companies are now focusing on core competencies, such as underwriting and claims.”

Gerling’s survey also looked at the rationale in determining when a product needs an upgrade.

According to the survey, distribution feedback and product profitability ranked equally as the most important rationale behind deciding when an upgrade was needed. Of the risk companies surveyed, 73 per cent said these were the top ranking reasons.

Market forces (60 per cent) and sales trends (53 per cent) were the next reasons given for determining an upgrade.