Moves to better integrate insurance into the financial planning process have been a long time coming, says Kristen Paech.
In this day and age, it seems absurd that the cornerstone of any good financial plan – wealth protection – could remain buried in paper. Yet the personal nature of insurance has to date made application and underwriting a long and drawn-out process, requiring a truckload of patience and tenacity on the part of both planner and client.
The crux of the problem lies in the time it takes from when the client agrees to take out an insurance policy, to the point at which the policy is actually written. Medical examinations, blood tests and paperwork all serve to slow the process to glacial pace, making it difficult to implement the policy in a timely manner.
Even the most efficient financial planner can’t help the fact that by the time the client has applied for the insurance; the insurer has requested further information; the application has been sent back for processing; and the policy has been written, many weeks may have gone by.
Dean Thomas, acting general manager of insurance at St George, says there are too many steps in the process to get an insurance policy fulfilled.
“If I give you an application form to be invested in the market to meet your needs, you expect that to be fulfilled within 24 hours,” he says.
“I don’t think it’s acceptable that it can take two to three weeks for a client to understand whether they’ve got the level of insurance cover that they need. It’s incumbent on insurance providers as well as the people who facilitate the writing of insurance to make that process easier, to give that certainty and protection to the client sooner.”
Technology is helping to facilitate the integration of insurance into the financial planning process; however, the solutions are piecemeal and do not answer calls by some industry participants for an industry-wide solution.
Macquarie was the first provider to launch online underwriting in October 2005 for its superannuation product, Super Protector, which is linked directly into the Macquarie Wrap platform for superannuation. An online portal was subsequently rolled out to the retail risk market last year.
Justin Delaney, head of insurance at Macquarie Adviser Services, says the move online has meant advisers can spend more time with clients.
Research conducted by Plan For Life last year, just three months after the online solution was launched, revealed 39 per cent of the advisers surveyed felt they could see 20 per cent more clients as a result of using Macquarie’s online system.
A large number felt it also became more economical for them to spend time with low-value clients, Delaney adds.
“Once you’ve got [the underwriting process] online it starts to enable other efficiencies, and a lot of them are very simple,” he says.
“There’s the ability to have premiums deducted from within the platform; greater transparency of their clients in terms of integration back into financial planning software; even starting the process of applying for a risk product through financial planning software, which in my view certainly will become the front end of financial advice. It really enables and drives a consistent process and that obviously brings forward efficiencies.”
BT Financial Group introduced Life on Wrap in October last year, giving wrap customers access to term life, total and permanent disablement (TPD), income protection and living insurance (for serious illness and injury) through BT Investment Wrap. SuperWrap clients can access income protection and TPD through their super accounts, and “short-form applications” with limited questions and fast-track underwriting are available for some clients up to age 55.
In December last year, ING Australia announced it had partnered with research and technology group IRESS Wealth Management to enhance its OneAnswer online application process.
Advisers can now complete and submit new applications without a client signature through the ING adviser website or directly via Xplan, removing the manual paperwork.
While paper remains the dominant method of processing insurance applications, many of those who are yet to convert have online solutions in the pipeline.
Delaney believes this development will make things easier for advisers and in turn help plug the underinsurance gap.
“Things such as tele-underwriting as they evolve in the Australian market will help clients and advisers apply for and have risk insurance put in the books; it really helps to reduce the lapsed time it takes from go to whoa in having a policy put in place for [clients],” he says.
“It challenges the dominant paper-based mod- els which result in medical questionnaires being sent back and forth, so there has been a shift already and that will continue to evolve over the coming years. Potentially you’ll see a shift in investment of life companies away from looking to differentiate on product per se and focusing on enabling more advice by having better integration into financial planning software, smoother technology processes, better services et cetera.”
St George, for example, is aiming to have electronic applications by early next year and straight- through processing by the middle to end of next year.
“At the moment we’re paper-based, but what we’ve done on the paper-based version is increase a lot of the limits [before] which you require [a] medical [examination],” says Thomas.
“The next version would be to make that application electronic, which effectively has the rules built into it to ensure that you’re answering all the questions you need; that makes cleaner data going through to the insurer and ensures quicker turn- around time of applications.
“The third step is straight-through processing, which means having an auto-underwriting engine inbuilt into the front end. We’ve got phase one, which is improvements on the limits in paper; the second phase is the electronic application and the third phase is underwriting.”
At the time of writing, MLC planned to launch a web-based online application form for both MLC Personal Protection Portfolio and MLC Life Cover Super at the end of October, available to advisers through the secure section of the MLC site.
David Evans, head of product, MLC Insurance, says the new form will help advisers through validation – making sure the mandatory questions are answered prior to the application being submitted – and give them comfort that the form has been filled out correctly.
However, Marianne Perkovic, managing director and chief executive officer of Count Financial, believes industry harmonisation is a necessary step in the move towards more efficient insurance systems.
Speaking at this year’s Investment and Financial Services Association (IFSA) conference, she said the various online underwriting systems that have cropped up over the past 18 months do not fully meet the needs of financial planners, who are required to research a range of different products on behalf of clients.
“Having every product provider now have an online solution means the financial planner needs to understand every provider’s systems,” she told delegates.
A better solution, in her view, would be an “eWrap” of risk products – a concept that has been explored in the past but has never gained industry support.
“It’s very disappointing, because if it was [embraced], like in the investment space where you have people with core competencies in technology administering the investments, you could have that on the risk side, and others could benefit by putting their products on there as well,” she says.
“So the adviser knows one or two risk platforms, but underlying that is a choice of options for clients. That strives to integrate [insurance] into the advice process, and that’s the important thing, integrating it into the strategy and the statement of advice.”
Perkovic says inefficient systems are holding financial planners back in the risk insurance space, and ultimately hurting clients.
“Unfortunately what happens in our industry is we have history repeat itself with complexity of products, lack of co-operation, inefficiencies, everybody doing their own thing, and the cost of that all [flows through] to the client,” she says.
But insurance providers say there are good reasons why risk platforms haven’t taken off, some of them commercial.
While investment platforms offer clients and advisers a range of financial synergies, including wholesale fees, consolidation of tax reporting and access to a wide range of funds under the one ac- count, they say the benefits of a risk platform would be far less tangible.
“The key reasons for wanting to move down a platform approach to risk would be to enable the underwriting application process to be more seamless; but after that there’s not a significant amount of benefit in having a platform,” Delaney says.
“It really becomes a portal to apply, and if you look at what life companies have done over the last five to 10 years, the majority of investment has been in product innovation, as opposed to process or system innovation. That’s one of the reasons why it hasn’t happened, but in terms of value for advisers and clients, it’s muted relative to other [investment] platforms, and in my view I haven’t seen a real cause for action.”
He adds: “If you want innovation in this market you need to be driving competition and that’s why everyone’s moving towards having their own underwriting and application processes. If you do have it on one platform, to be honest you’ll probably restrict that innovation to a point.”
Evans agrees the benefits of risk platforms aren’t there to the extent that they are with investment platforms.
“There is probably less need for the consolidated reporting,” he says.
“Putting insurance in place is one of those things that’s done at the time of putting the plan together and is probably reviewed on a less frequent basis than the investment component.”
MLC provides its individual insurance product Life Cover Super through its Masterkey platform.
“We’ve provided an individual contract there that gives the adviser and client more flexibility in tailoring the cover to the client’s needs and it also allows the client to have the premium deducted from their super account as well,” Evans says.
According to Thomas, the fact that individual insurers have their own peculiarities creates better competition in the market.
What’s more, he says buying insurance is not the same as buying a managed fund – there are different rules and different underwriting rules depending on the type of cover you want and the insurer you’ve selected.
“If everyone was the same you wouldn’t get the differentiation between the product providers, premium rates, level of covers and term,” Thomas says.
“While the concept is easy, putting it in practice is much more difficult because I don’t believe it’s appropriate to build a generic underwriting engine. One size doesn’t fit all in the insurance world and it shouldn’t, because insurers will specialise in different types of cover and they’ll have different premium rates. You need to allow providers to differentiate and that makes it more difficult to have a one-size-fits-all underwriting engine.”
IRESS is helping to streamline the process for advisers by providing integrated practice solutions via its AppCentral online application platform.
Zurich and Asteron are using the solution for all retail insurance proposals and Michael Kinens, senior business development executive at IRESS, says the firm is in discussions with a number of other providers.
The challenge for the industry, he believes, when integrating life insurance into financial planning, is bringing efficiency back into the process.
“If I look at what’s occurring at the moment in terms of the development of insurance solutions specifically, each insurance provider is developing bespoke solutions that are tailored towards them trying to get an edge over competitors in the marketplace,” he says.
“From our perspective, the challenge that brings to the adviser is they now need to have capabilities, skills in using those specific tools for their processes, and efficiency in terms of, once I’ve got the information in there, the insurance process happening quickly and efficiently.
“What we see as needing to occur is you need to add efficiency back into the operation. We’ve been talking to a lot of the providers about how we can dovetail into their online offering. That still allows, to some extent, their offering to be in a position of differentiation.”
Evans believes moves by insurers and software providers to improve systems and processes are a positive step forward for the industry that will lessen the complexity of insurance for advisers.
“There’s been a lot of competition between insurers over the last couple of years and the majority of that competition has been based around product differentiation,” he says.
“I think there’s started to be a shift away from that and now a number of insurers are starting to focus on the ease of doing business with a given insurer and trying to make the adviser more efficient to help them write more business.
“Rather than launching new features and bells and whistles on a product, [providers] are more looking at the servicing of the product and the new business process; moving away from paper-based applications to online applications, and introducing things to make it more efficient for the adviser to write more business. They are looking at passing data, for example, out of financial planning software into an insurer’s online application to reduce the need to re-key data.”
Gerard Kerr, head of product and market- ing at ING Life Risk, says complexity of process has driven planners to think that the products are complex.
“If we can somehow diminish the complexity of the process, we’ll make the products less daunting,” he says.
“The products are broad in coverage, and that’s really important because one of the things we want to ensure we do is to pay as many claims as we can. If we can demystify some of the complexity in the beginning in terms of the process, we will hopefully reduce the conception that [insurance] is complex.”
He adds: “You tend to say something is complex and become defensive against it if you don’t understand it. That’s where I think the education piece can be done better.”
