Australia’s Life Insurance industry was set for a “rocky” few years ahead, but consolidation and the arrival of new international players along with improved data management were pointing towards a brighter future.
This was the consensus view on the Future of Life Insurance at the FSC event from a panel discussion, moderated by FSC Chief Executive Officer, Sally Loane, which also highlighted the question of advisor and sales commission models as a critical industry issue.
While endorsing the idea of fee for service remuneration, the panel was sceptical that commissions could be abolished altogether, suggesting that the best approach was rather to remove conflicts of interest.
Overall, the view was that while the industry had work to do in many areas, not least of which was rebuilding consumer trust, there were reasons for optimism and this was endorsed by an audience poll at the event.
Asked to describe their level of confidence in the industry’s future to 2025, 77 percent of the audience said they were “completely,” “quite” or “somewhat” confident in the future, while only 23 percent said they were either “not very” or “not at all” confident.
Panel member Geoff Summerhayes, an Executive Board Member at APRA, said that while he believed the path to 2025 would be “rocky and uncomfortable”, there was cause for optimism.
He noted significant pressure on the industry from declining profits which were undermining the sustainability of the industry, both for providers and policy holders.
With profits falling, there was under investment in innovation and systems, and too many providers were struggling with a “long legacy” of products and processes.
Summerhayes described data management in the industry as “very poor,” and said that until this improved it would impact on governance and decision making.
One positive was the ownership transformation which was taking place, with large global players now present in Australia after a period of Merger and Acquisition.
“Ultimately that should be very positive, because they have deep expertise and have a long-time horizon, and they appear to be making decisions for the longer term,” he said.
“Competition is good because it brings innovation, and I also think that consolidation is important because it brings scale and we need a rational set of players to set rational outcomes.”
John Trowbridge, who authored a major report on reforming the Life Insurance industry in 2015, agreed that data was an issue but said it was a symptom of a major problem: a lack of cooperation among industry players.
“Each company looks at its own situation and worries about its competitors, and that can end up in a situation where the industry is fighting among itself and not serving the community,” he said.
“The worst example of this is companies not getting on board with industry wide data collection because they think their own data gives them a competitive advantage.”
The third panellist, ClearView Wealth Managing Director, Simon Swanson, agreed that data management had been “appalling” and put this down to a lack of investment, largely by bank owned life insurers who were now exiting the industry.
He welcomed the publication of claims data by APRA as a good step, agreeing this would drive transparency and accountability.
The panel also spent time on the issue of adviser commissions, with Simon Swanson forecasting the increased “corporatisation” of the advisor channel, and a reduction in the number of advisors from 25,000 today to around 15,000 by 2025.
“The sole trading advisor, I think they will increasingly leave the industry, which will have them in clusters, and be more corporatised,” he said.
One the issue of remuneration, Swanson said one solution was to make fee for service financial advice tax deductible, although he said this was unlikely in the “current climate.”
He pointed to the superannuation industry, where advice could be funded out of a super account, and in mortgage broking where fees could be added onto loans and amortised.
“The issue in life insurance is you have to pay cash for it,” Swanson said.
“I think we should have a policy position, where if you want to treat the industry as professional, if someone is paying a fee directly to an advisor then it should be tax deductible.”
APRA’s Geoff Summerhayes conceded that tax deductibility in life insurance was problematic.
“It’s very difficult to get Treasury to be sympathetic towards issues like tax deductibility when you have an industry that has caused the Government and Treasury a lot of heartache,” he said.