The traditional risk product development process is defined by a top-down approach, extending from the life insurer to the financial planner or risk adviser and only then to the consumer.
Insurers insist that consumer and adviser feedback heavily influence their product design. However, the fact remains that most Australian financial services (AFS) licensees and planners are dependent on manufacturers to design and build the products they sell.
There is agreement across the industry that, for various reasons – including the higher rate of claims and therefore lower profitability of the insurance companies – there has been a dearth of life insurance product innovation in recent years.
One independently-owned licensee, Synchron, is attempting a more bottom-up approach by outlining the features it would like to see in life policies and seeking manufacturer support in building the products. These features include electronic underwriting and a combination of level premiums with a hybrid commission payment structure.
“We believe that this particular product will address the supposed churn issue – I say ‘supposed’, because we’ve seen no evidence of endemic churning,” says Don Trapnell, director of Synchron and an outspoken 48-year veteran of the risk sector.
Having first floated the idea publicly in April, Trapnell is already confident his ambitious concept will prove successful. “Three [insurance companies] have moved it to the actuarial stage and are working on premium rates, and two are still at the investigation stage,” Trapnell says, unable to identify the companies for commercial reasons.
He hopes this approach will temper the level of government intervention, which was foreshadowed by Assistant Treasurer Josh Frydenberg in April, when he gave a deadline of “weeks, not months” for a co-ordinated industry response to the controversial Trowbridge report on retail life insurance advice.
Addressing the problems of the risk advice sector will be part of the federal government response to the Financial System Inquiry, widely tipped to take place by the end of July. “Because of the FSI [response] coming down [soon], I would love to be in the position of going
to the minister with a definite product shape,” Trapnell says.
The word from Zurich
Also looking at the current risk debate through the lens of a product manufacturer, Philip Kewin, Zurich Life and Investments general manager of retail, outlines one of the key challenges facing insurers at the moment.
“In this best interests environment, everyone wants to make sure we offer the clients the best policy available,” Kewin says. “The challenge with that is the best policy available means there’s more chance of the client claiming, [and that] means there’s going to be a higher premium attached.
“You’ve got cut-down [scaled] products, but advisers are unlikely to recommend them, because no adviser wants to be on
the hook for a policy that may not pay, when they could’ve recommended one that’s more expensive but will pay.”
He says research companies play a role in this too, with their ratings often deciding which products make it onto licensees’ approved product lists.
“If the researcher doesn’t rate it highly, it’s hard for the adviser to recommend,” he says.
Acknowledging there have been very few truly “new” insurance products developed recently – often just different iterations of the same product – Kewin says: “Maybe now there is an appetite for product development that will bring more tailored offerings.”
“We’re actually getting the best ideas from talking to the customers…I think every [insurance] company is in the process of looking at what the future looks like and how we start to look at more ways of creating new ideas,” he says.
“We need to be far more responsive, and I think that’s what you’re going to see over the next couple of years. The companies that are agile and responsive enough in delivering what advisers and customers need are going to succeed. Those that aren’t responsive will struggle.”
