The life insurance industry is at an “inflection point” which challenges its long-term sustainability and demands fundamental change: this was the consensus view from a panel of industry leaders comprising regulators, re-insurers and product manufacturers.
By Lachlan Colquhoun
The panel session at the FSC Life Insurance Summit began with an audience poll in which 74 percent of respondents agreed that “major fundamental change is essential for the life industry to survive and thrive” and this position was endorsed by all panellists.
“We are at an inflection point and we have a good opportunity for change in the industry at the moment,” said Suzanne Johnson, General Manager – Life Insurance at regulator APRA.
“APRA is concerned about the sustainability of the industry and we have to take steps. With changing dynamics across the whole industry everybody understands change needs to be made.”
Fellow panellist Justin Delaney, the Australian chief executive of Life & Investments at Zurich, said there was “no doubt” that incremental change over the past decades had not worked.
“One of the biggest problems is that we have ended up with a vacuum and that has been filled by regulators and we (the industry) need to start to lead this change,” Delaney said.
“Incremental change tends to be blunt and we don’t want to continue to see intervention from government and regulators.”
From reinsurer RGA Australia, the managing director for Australia and New Zealand Mark Stewart described current market conditions as “incredibly challenging” from the perspectives of all stakeholders.
“Incremental change hasn’t worked and we need fundamental change now, and I think there is a question on whether life insurance will continue to be available and affordable without the change.
“And I think it’s a fair question on whether shareholders continue to fund future business if the outlook for returns is not better than it has been.
“We need to more from awareness into a desire, and without that we are going to continue to just talk about what needs to be done.”
The fourth panellist was Megan Beer, the Australasian chief executive for Resolution Life and AMP Life, which has recently transitioned to being an “in force” specialist.
Beer said that the move to specialise was one way the industry could change, through providers focusing on different areas of business, with some dealing with existing business and others with new customers.
“We are a mature industry and mature industries need to change their business models,” she said.
“In the last 20 or 30 years we were a growing industry, and we were distribution led.
“As we have become more mature the need to grow more sales is not as important to overall success and we are at that inflection point both from sustainability and maturity, and different business models can help the industry survive and thrive.”
Having agreed on the seriousness of the challenge facing the industry, the panelists then moved to a discussion how to drive a sustainable future with the context framed by two more audience polls.
Asked where the major challenges and problems lie, 56 per cent of respondents said it was in the interplay between the existing book of business and future business. 37 per cent said the existing book, while only 7 per cent said future business was the main issue.
To the final question on the future importance of the industry, 51 per cent said it would continue to play an important role, while 39 per cent said its role would be “more vital” as the economy evolves. 11 per cent said its role would diminish in importance. (percentages were rounded up, so the total was more than 100 percent).
Zurich’s Justin Delaney said a key to the industry’s future was “to find a bridge from legacy products to whatever a new sustainable product can look like.”
There were a number of structural issues which had long existed in the industry and were now “getting to crystalisation.”
“Indexation and price increases are combining to a point where customers who have paid for a product for a long time and have paid their premiums in good faith potentially can’t pay for that product going forward,” he said.
There might, said Delaney, have to be rethink on the “generosity of benefits” because, at an aggregate level, the community was not looking at life insurance as if it was like “winning the lottery.”
“They are looking for a level of protection which will meet their needs and meet their piece of mind,” he said.
“The real danger is we end up with stranded customers who can’t leave products as prices escalates, and we need to think how we build those bridges so they have products which meet their needs and which they can afford.”
Delaney said the industry was at a point where “we need to rebrand.”
“We have been inwardly focused because of the crisis we have been confronted with,” he said.
“We have been inaccessible and we have been poorly understood. Our bias has been towards building complexity.”
This was creating a crisis of accessibility, where in the “worst case” only the wealthiest Australians would be able to access specialist advice within the next two or three years.
RGA Australia’s Mark Stewart said that the “biggest pain point” for the industry was the existing book.
“One of the mistakes we have made in the past is that we have assumed that our legacy books would not effect our contemporary portfolios and we have inevitably been shown to be wrong,” Stewart said.
“And I think that as we address future business it will crate options to enable us to manage the existing book as well.”
The panel also identified data management as an enabler to a sustainable future, both in terms of transparency for consumers but also to deliver data to boards of life insurers, many of whose members were not industry specialists.
Improved data management would deliver a better customer experience, but could also improve governance standards and better understanding at a board level as shareholders made critical decisions on future capital investments.
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