Big Challenges, Big Opportunities – The Outlook For Life Insurance

The life insurance industry is in a state of flux. The significant forces shaping our industry include sweeping legislative reforms, shifting customer expectations, digital disruption and challenging business conditions.

A closer look at some of the tough business conditions reveals an environment of low investment returns, growing competition and escalating claims—all of which are putting significant pressure on profitability.

While life insurers have enjoyed a long history of protecting Australians, current conditions mean we need to look forward – not back – and find new ways to create a stronger, more sustainable sector.

it’s important our industry focuses on what we can control

After all, keeping the ‘life’ in the life insurance industry benefits the economy, communities and individuals. That’s because our industry offers invaluable peace of mind to policy holders, pays an estimated $8 billion¹ to claimants annually and makes a significant contribution to the Australian economy.²

So, how do we make the life insurance industry sustainable in an era of disruption and change?

Certainly, there are plenty of opportunities to make changes across the board but I think it’s important our industry focuses on what we can control. We can make a start by advocating for better education, improving business efficiencies and delivering products and services that better meet consumer needs.

Already there’s a growing awareness in our industry of the potential of education to help advisers prepare for the future, encourage more Australians to take out insurance and enable clients to get the most out of their cover.

I think we’ll see a greater focus on education as our industry encounters further regulatory changes such as the introduction of new Professional Standards, due to come into effect from 1 January, 2019.

For advisers, there’s value in further education as way to enhance and broaden their skills and competencies which will benefit not only their clients but also their business and the wider community.

According to the recent AFA White Paper on adviser education, (which Asteron Life helped develop), ongoing education is integral to the future success of financial advisers. In a new era of life insurance, financial advisers need to grow their technical and business acumen as well as refine their client-facing competencies such as interpersonal skills.

A new education framework that incorporates improved skills and competencies will better equip advisers to deliver quality advice to consumers who are facing increasingly complicated financial situations brought about by higher debt, more complex financial products and a growing responsibility to self-fund their financial future as the public purse-strings tighten.

We can also look at education as a way to change consumer perceptions.

An April 2016 survey by PwC found that, while 78% of Australians viewed life insurance as important, only 42% believed their life insurer would be there when they needed help.³

This view is at odds with actual claim experiences that state around 90% of claims are paid by insurers in the first instance.⁴

Improving confidence in our industry will go some way in addressing the issue of underinsurance

More recently, a spate of negative media reports is likely to have fuelled negative perceptions of the industry.

Clearly, there’s a need to create a new narrative that puts the life insurance industry in a more positive light. Conversations should focus on the value of insurance in protecting Australian livelihoods and reference real life success stories.

Improving confidence in our industry will go some way in addressing the issue of underinsurance and is likely to increase the number of consumers actively seeking advice.

While the jury is out as to whether LIF reforms will help create a new, more trustworthy image of the industry, there is an expectation the reforms will drive increased transparency and place emphasis on putting clients’ needs first.

Clients’ needs will also be better served if they’re educated around how to get the most out of their cover. For example, a more detailed explanation of rehabilitation services on offer could see more claimants return to work earlier, which would benefit insurers and the individuals themselves.

Apart from education, insurers will need to look at business efficiencies, product design and new technologies as the new world continues to unfold.

While there are sure to be more changes on the horizon, I firmly believe taking steps now, particularly around education, is a powerful way to help transition the life insurance industry into a sustainable, valued and respected profession.

References

1. $8.2bn in Death and Disability claims paid in 12 months to Sept 2016, APRA Life Insurance Statistics (Nov 2016)
2. Over the year ending December 2016, the finance and insurance industry contributed $148.9 billion to Australia’s economy, ABA Economic contribution of banks, April 2017
3. PwC, ‘Future of life insurance in Australia’, 2017
4. ASIC, ‘Life insurance claims: An industry review’, Report, 2016

Daniel Waller is Head of Wealth and Life Intermediaries, Suncorp