Life insurance providers need to harness innovation and develop more affordable and sustainable products if they are to avoid the same kind of incursion banks are dealing with when it comes to buy now, pay later market disruptors according to the Australian Financial Complaints Authority.
Speaking on a panel at the Financial Services Council’s Life Insurance Summit recently, AFCA lead ombudsman for insurance John Price said consumers are increasingly seeing (non-group) insurance products as unsuitable and unaffordable.
The sustainability of the insurance industry is under threat, he explained, because consumers are being priced out of insurance and opting to let their policy lapse.
“From a consumer point of view the industry is rapidly pricing itself out of consumers’ range,” Price said. “Other than group insurance, we’re seeing complaints coming in, unfortunately, from people who didn’t opt in that otherwise would have been covered.”
While the insurance industry has been busy reshaping its offerings to combat losses of around $5 billion over a five year period, as well as catering to new sustainability standards around income protection insurance, Price believes providers may have lost sight of the consumer.
“It’s not just the industry focussing on what’s sustainable to make a profit, but working with consumers to ensure that the products being provided are consumer-suitable in terms of not only benefits but also the price, and that that’s sustainable from an industry point of view,” he said.
If the industry continues on this path, he predicts, consumers will latch onto alternative products that will inevitably be brought to market by disruptors.
“We’ve seen it with banking, we’ve seen buy now, pay later, Afterpay… all those sorts of things that offer an alternative product that people are looking for,” Price said. “Whether we agree with those products is a different question but clearly consumers want some of those things.”
Ultimately sustainability needs to be looked at from both the industry and the consumer’s point of view, he said. “It’s a partnership.”
Price was joined in the session by ASIC’s senior executive leader for insurers, financial services and wealth, Emma Curtis, and APRA’s general manager of life insurance Suzanne Johnson, both of whom emphasized the importance of using technology, especially data analytics, to design better products.
“We see the biggest opportunity in data and systems that will help your product design and your distribution strategy, your claims handling strategy and your compliance,” ASIC’s Curtis said. “Yes, there is a big regulatory impost but use the data to identify the risks in your business, conduct risks and potential prudential risks.”
Price agreed that providers shouldn’t be using the current regulatory regime as an excuse for not innovating. While acknowledging AFCA is usually “12 to 18 months” late in getting across new products that have hit the market, he still believes insurers aren’t being brave enough with their product development.
“The industry is heavily regulated in many respects but that shouldn’t stifle innovation and it should be used as a motivator for innovation,” he said.
“We’re not seeing the changes I think that we’ve seen in other areas around innovation, the innovative products that are being developed… we’re not seeing that.”
It would be good if publications like this actually gave exposure to people who knew what they were talking about. Maybe a lot of the carnage of LIF and FASEA would not have occurred which has effectively seen new insurance business approximately half in the last 5 years.
No it means that they have been regulated out of affordability. Do the maths – very little of the premium actually protects the risk, the rest covers regulatory red tape – but you need to have an actuarial understanding to ‘get’ that so the situation worsens every year with more red tape – and I’ve been watching it for a lot of years
This is quite interesting as it really highlights the value of what are now members of the AFA and originated as insurance salesmen. Guys like this led my dad (may he rest in peace) to comfort in retirement and through his working life, knowing his large family was protected – through their sales activities which are effectively now banned. Of course the little peccadillos of the insurance companies working with super funds to ‘sell’ to people who were unaware of the sales have been rightfully exposed and rectified. Now it’s up to Danielle Press and others to get out of the way and let an extremely valuable product be available to those who need it and stop leading people to poverty who otherwise would have avoided it.
I am surprised about John Price’s comment on group insurance pricing. In my personal experience life and TPD cover is often more expensive than adviser-led insurance, despite it being group insurance.
Does that mean that both group insurance and adviser-led insurance are pricing themselves rapidly out of the market?
There has been little stuctural improvement to personal insurance products in the last 20 years, the best we’ve seen is a refinement of features that I’m not convinced add any real value to a client’s situation.
The greatest feature that is completely wasted in my opinion is assuming that if a 20 year old purchases an insurance product then they will want to hold onto it until they are 99 (or 75 for CI).
Why does even a 20/30/40/50 year old have to belong to the same book of risk that includes insured people in their 80’s and 90’s?
If someone wants insurance until they are 99 then they really should purchase it themselves and pay the risk adjusted premium. The aim is to make all personal insurance more affordable for those under age 50/60, not to try and subsidise the 80 year old.
Maybe just packaging the risks more appropriately would provide a better outcome, but clearly lumping everyone into the same risk category is not helping.
What happens when the rocket scientists in the Govt collapse the new business stream via LIF & FASEA (for risk advisers). Writing new insurance business is hard work & getting paid less to do it & requiring sales reps to complete 8 university units just for the privilege of being able to sell it, is nuts. This is all self-created by the Govt & the FSC. Welcome to the nightmare you were warned you about. You don’t make insurance cheaper by making the insurance new business pool smaller. The ineptitude is breath-taking.