Independent licensee Synchron has taken a step closer to finalising a new kind of life insurance product in Australia after revealing that it is working on the last details of product design with underwriter AIA Australia.
Synchron director Don Trapnell (on the left in the picture) says the new product will offer a range of terms and level premiums at significantly lower cost than current level-premium products, where premiums are often priced at 200 per cent of yearly renewable premiums for given age and level of cover.
Trapnell says the design promises to improve consumer affordability; create a greater likelihood of policies remaining in force when an individual is most likely to make a claim; improve sustainability for life offices, with the promise of policies remaining in force for longer than the current average; allow consumers to lock in attractive level premium rates at younger ages; and provide a fair reward for the work advisers do arranging cover for clients.
“It is still a work-in-progress,” Trapnell says.
“I don’t know how many months away it is; the sooner the better, as far as I’m concerned. But AIA very sensibly is walking down the path appropriately to make sure the final product, when it comes out, will incorporate the design elements we think are absolutely critical, but by the same token won’t leave itself open to criticism for not taking into consideration the views of and the needs of consumers.”
Changing consumer and adviser needs
Trapnell and Synchron independent chairman Michael Harrison (on the right in the picture) travelled to the UK last year in the wake of the Review of Retail Life Insurance – the so-called Trowbridge Report – to examine the life insurance market there and to examine produce design and how life underwriters have responded to changing consumer and adviser needs.
Trapnell says a clear message they received from insurance executives was disbelief that life insurance policies in Australia seem to be structured to ensure they are least affordable and therefore least likely to be in force when individuals are most likely to make a claim. He says the underlying reason for that is “a love affair” with yearly renewable premiums that simply does not exist in other markets.
The design for the new product stems in part from market insights gained by Trapnell and Harrison, and in part from work already undertaken by AIA to overhaul product design.
Synchron shopped its product concept to about half a dozen underwriters, who one by one dropped out of the running to co-develop a product, until AIA was the last one remaining.
Trapnell says Synchron does not have, and did not seek, an exclusive arrangement with AIA and when the product is launched it will be available for every licensee to distribute.
Key piece of feedback
AIA’s senior manager of retail product strategy, Steven Baxter (in the centre in the picture), says the company surveyed the representatives of three licensees, including Synchron, to refine the key aspects of product design. He says a key piece of feedback was that advisers wanted a wide range of fixed-term options.
“We are looking at life, TPD and critical illness, on level premiums,” Baxter says.
“TPD and critical illness are obviously important because there is some fluctuation in the marketplace around those premiums so we really want to give some certainty to the customer.
“We want to make sure it’s guaranteed renewable, so at the end of the fixed term the client will not have to go through extra underwriting or medicals to get the cover if they want to continue with cover. That’s really important because at that time, the health of that person may have deteriorated. So we want to provide that certainty.
“We’re going to give complete flexibility for the adviser and customer at the end of that fixed-term level. They can choose to move it to stepped [premiums]; choose another fixed-term level; go to level [premiums] to [age] 65 or 70; or even choose AIA’s optimum premium range to be able to best provide a solution that meets the customer’s needs.
“And we will include our Vitality discount offering to this product.”
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Product details
Baxter says AIA has been working closely with Synchron on product details.
“It really started with Don sending a letter out to a number of insurance companies detailing the work he’d done in the UK,” he says.
“We thought there was some legs to some of the concepts that were in there.”
Trapnell says the product under construction would enable advisers to “shape” insurance cover around the client’s life cycle.
“So you could have a high sum insured in the early years when children are at private school, mum’s at work and dad’s at work; and then in the next group of years maybe a slightly lower sum insured because the kids have left school; and then maybe in the final years when the mortgage is paid off, a different level of cover,” he says.
“We found that was very common in the UK, but we don’t see it at all in Australia. Product designed properly – done the way Steve is talking about – can actually be shaped. We can go through a consumer’s life cycle and actually hand-in-glove fit a life-insurance program that suits the very needs of their changing circumstances.”
