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.”