Risk insurance has been on the ropes for some time, but it is far from down and out. In fact, many in the game would contend the market must improve as it has no other options.Money Managementeditor JASON SPITS (MM) chaired a roundtable discussion that sought answers to where will growth come from, what are the barriers and what will the future hold for planners and advisers in the area of risk insurance. On the panel were Swiss Re chief marketing officer for life and health Neil Spracking (NS), Swiss Re global head of pricing Ronnie Klein (RK), CommInsure insurance sales general manager Leon Beale (LB), Harvest Partners partner Peter Ramjan (PR) andRice Walker Actuariesdirector Michael Rice (MR).
MM:Is there organic growth in the risk market or is the growth going to come at the hands of insurance reforms, government actions and industry moves?
LB:Australia is underinsured, both in terms of the penetration of the population and in terms of the average levels of cover. Expectations of what is the ‘acceptable’ cost of cover to the consumer is what is driving the
levels of cover. Budget rather than needs. We as an industry should pursue this issue.
PR:With the impact of the financial services reforms on small to medium-size financial planners, the lower end of the insurance market is not worth covering, so there has to be a model to serve it and it is likely the banks will do it ahead of the risk houses.
MR:The problem with banks though is they have no affinity with their clients and the irony is the banks are the most expensive product providers. Rather the lower to mid-end of the market is getting cover from industry funds.
RK:The lack of growth in new insurance sales is due to an insufficient number of qualified financial advisers selling insurance. It is a problem world wide. Unfortunately, growth usually comes from government actions.
NS:The dilemma is that we have an ageing workforce, as well as a tighter compliance and licensing regime. There are good bank insurance models in places like the UK and Spain. There is a real opportunity for Australian banks to further develop their bank insurance offerings. The question is, how can this be done?
LB:For the mums and dads market it has to be a model that supplies simple products with an easy transaction process. For clients of lower-net-worth, who need cover too, the economies of advice do not justify full advice. The banks can serve a social good here.
PR:The banks have waited for clients and have moved the sales point to the front counter. This means staff have been treated as a sales force, but they do not act as sales people because they don’t have the skills or tools to do so.
MR:Clients also want to deal with people of a similar age, with the successful planners of the early 90s now over 55 years old. Yet for new entrants it is easier to be a mortgage broker than a financial planner.
MM:Given this, how will the distribution landscape for risk business develop over the next three years and what will shape it?
LB:Risk advice will have a presence in the third party market, but the challenge is to preserve this channel and grow it. There has been a loss of specialised life writers through ageing in recent years, as the older people retire. There needs to be a succession driver in the business. There are good books available to purchase as a result. Level commissions and income streams are a disincentive for current advisers to grow their books.
MR:Superannuation funds normally have an element of group life and more than half of the risk held is through that type of arrangement. This will be a growth segment. Many planners will provide risk advice through these funds.
RK:One of the big problems around the globe is that bank personnel are not taught how to sell risk insurance and while the banks may be the new training grounds, they will have difficulty finding and training qualified advisers.
PR:The traditional life adviser has been in a model where they have made the sale and moved onto the next client. Under the Financial Services Reform Act (FSRA) that model is gone and advisers are alienated because the Government has developed an advice model that has seen the sales culture exit the industry.
RK:I believe that advisers should charge for their services, if they don’t, they are saying there is no value in what they do. The sale of the product is not the money maker, the provision of the advice is.
MM:Do the product offerings of risk houses impact on the future of the industry and where do the problems lie?
PR:The life industry thinks differently than others since it has commoditised products, which means people expect to pay less for them. However, there is a move from manufacturers to distribution, which has put the manufacturers under pressure and created buying power at the retail level, which means there should be more efficiency and lower margins.
LB:There is growth in the group life and corporate markets, but the retail individual market has been flat (the income protection new business market has contracted 25 per cent this year). Most insurers do not understand their distribution and have historically adopted the strategy of chasing research house rankings. With rationalisation of insurers, there is a chance the market will focus on cost reduction, not growth. It could get too hard for advisers, impacting on the availability of insurance to Australians.
MR:I would agree with that — life companies have approached risk as a piece meal effort but new channels will develop to pick up the slack and getting new blood into them is still the issue. Many advisers believe there is better money in other products and advice areas.
RK:Yet there has almost never been a better time to sell risk cover. We have had a war, terror events, an epidemic, but people still adopt an ‘it can’t happen to me’ mindset.
NS:The reason for that is there is little awareness of risk insurance. Life houses don’t typically advertise. There is a real opportunity for the industry to heighten awareness and to reach potential risk customers. So, at the moment the risk industry is fighting for space in the marketplace.
LB:Consumers are not concerned with products. They are over-engineered and that is what they pay advisers for — advice on these complex products. As I said, risk providers have run a strategy of chasing research house rankings. The customer really is not in the loop.
PR:This focus is because life companies do not always know their customers, which they should regard as financial planners as well as the planners’ clients.
MM:What are the positive and negative sides to finding success in risk insurance in Australia?
MR:Product transparency in the area of costs is a good thing but this is offset by a semi-manual claims process which needs to evolve.
LB:A negative factor for the industry is the lack of ability to reinvent or create new products and the distance it has from the customer when it comes to providing them with products. On the other hand, the mid market is still being serviced via the banks and as the new distribution landscape emerges, all risk advisers should find new opportunities.
PR:The industry has never invested in education and has never looked at the next generation of advisers or consumers, but there are smart people at a cross roads with the will to survive, so we will get solutions to these problems.
NS:I believe risk insurance is a socially and economically important business. Growth will come when the industry penetrates the uninsured and under insured markets to a greater level. If we can improve the simplicity of access to risk for everyone the situation will improve and hold the promise of a good future for risk insurance.
Money Managementwould like to thank Swiss Re for hosting the roundtable and the panel for participating in this industry discussion.
