A hybrid model of direct and brokered life insurance distribution adopted by some risk providers in England has attracted the attention of Wayne Handley, managing director, Bombora Advice.
The head of the risk-focused Australian Financial Services (AFS) licensee observed the model being used by a number of insurers during a UK study tour he conducted in late June 2015.
In these examples, after initial telephone contact is made and an agreement reached between the insurer and consumer, a broker is introduced into the process, with the contact being on-sold. The broker then arranges a face-to-face visit with the client, where they talk through the terms and conditions and help with completion of the documentation. The broker pays the insurance company for each lead or referral.
“This direct model…was quite an eye-opener,” Handley says.
“If we ever decided to look at a direct model ourselves, I would really closely examine that. In a very subtle way, it introduces a personal relationship, which really makes the customer feel comfortable.”
He says Bombora will explore opportunities in that space and how it could complement its model.
“Direct insurance here [in Australia] goes straight [from the manufacturer] to the consumer, there’s no relationship, unless the client specifically asks for it,” Handley says, “whereas [in the UK examples], it is just a normal part of the process.”
Lower lapses
This results in a considerably improved client retention rate for UK direct life insurers relative to Australia. Jenni Baxter, a senior consultant at Rice Warner, suggests the lapse rate of direct life insurance sold in Australia is around 30 per cent for the first one to two years.
During his study tour, Handley also observed a number of life insurance companies that used the more traditional direct approach, along with life insurance advice being provided by both specialist advisers and full-service planners.
“But among those one or two models that we saw, I think it’s a nice subtle edge, with no downside to the consumer.
“Introducing a low-key relationship into the process has helped preserve so much more of the quality of the book,” he says.
Complementing, not competing
Far from posing a threat to specialist risk advisers, Handley believes direct life insurance plays an important role in opening the door to clients that would otherwise be uninsured.
“It’s a different customer [to what we deal with] plus I think it’s good for the industry if we’ve got more people with cover.
“It can start an advice discussion, and I’ve always held the view that if someone’s bought something online, they’re a future customer,” he says.
Speaking more broadly about Bombora and developments inside the Australian life insurance sector, Handley says it is receiving a high rate of inquiries from practices interested in joining.
“Our inquiry rate from accounting and financial firms, to provide outsourced risk services has increased.
“The inquiry rate has gone up over the last couple of months, and I believe it’s because of the changes taking place out there. I think people are aware that there are economies of scale to be gained. The changes have fast-tracked that,” he says.
However, Handley says the business has no specific growth targets in mind.
“We’re not a licensee in the traditional sense; we’re a risk advice business that has a license.
“We’re not about numbers, we never have been. The business model of the future is changing to a more corporatised model and we aim to build that,” he says.
Handley believes that in three to five years, Bombora will look more like “a small- to mid-tier accounting and legal firm, a proper financial services model of the future.”
