The Australianrisk industry will increasingly focus on distribution channels as it seeks to regain profitability while still examining action to deal with the problem of the increasing size of claims and unprofitable products.
These were the major findings of reinsurance group Gerling Global which researched the trends as part of its annual Market Evaluation of Individual Risk Products.
According to Gerling Global general manager Brian Sussman, the survey, now in its third year, found that the advent of the Financial Services Reform Bill (FSRB) would result in immediate and long-term changes in service models.
“The question of who will service the lower net worth clients and through what distribution model, is still being addressed but life companies have identified this as a priority,” Sussman says.
This was evident in the evaluation report with half of life company senior executives identifying nominated distribution becoming more powerful in the next five years.
“This is consistent with the idea that many life advisers who make the transition to the new advisory models under the FSRB will continue to lever off existing relationships for ongoing wealth creation,” he says.
However, life companies have begun to steer away from competing solely on price alone, with Sussman saying companies which do so “will live and die by the sword”.
“Companies are not pushing prices up to get the cream and have come to the realisation that the main game is not about market share but profitability,” Sussman says.
This was drawn out in the research focusing on products where 93 per cent of life companies said they would not be prepared to manufacture product to achieve recommended status if it meant not achieving profit criteria.
Sussman says such attitudes have been formed by negative product experience which has bitten into the revenue of life companies.
“Two-thirds of life companies have one product which does not meet profit criteria.”
Despite this he says the industry is not heading for tougher times since it has already identified the central points of improving products and moving from being singularly focused to become more holistic in terms of product offerings and service.
