Speaking at the recent Investorfirst Securities Wealth Management Conference, TAL CEO Jim Minto explained that changing customer behaviour is radically altering the way in which life insurance is purchased and priced.
“I think the lens of the consumer has to be brought into the life market, because the consumer is treating channels with great disrespect, and is prepared to move across channels very freely,” he said.
“So my insight on this is that traditional methods of assessing this market aren’t really valid. Consumers are moving freely across channels. We have consumer activism. Consumers are driving activity in the advice market, in the group market.”
“Consumers acting of their own volition directly that’s driving a lot of activity.”
He added that the thrift-chasing consumers are increasingly choosing to shop around online before purchasing insurance through their super fund – where they can potentially get a far better price and easier underwriting.
“So that’s what’s happening. It’s driving greater customer movement, churn activity and so on,” he said.
“On the Financial Services Council side, we’re saying we’re designing these products in quite a traditional way to stay on the books for seven years and so on, and we’ve priced them that way, but suddenly this is all changing – and these products are mispriced if that’s the long-term assumption.
“So we’re trying to change the remuneration basis. I think it’s very much work in progress, and the changes that are being proposed certainly won’t be the end of the changes that are required.
“The life industry said to advisers, very painfully, it said we’ll only keep doing business this way if you change the commission rules. And if a policy goes off you’ll lose 100% of your commission in year one, 75% in year two, 50 in year three. So if a policy’s not on the books in year three, you could lose half.
“When you’re paying 120% or something close to it to acquire business, you just need to get above the water if you’re a life insurer.”
He added that advisers are already struggling in the life market, as gaining customers can be a tricky proposition when customer needs are being met by alternative channels “and it’s so easy for them to pay for it and fund it elsewhere”.
“The market’s realised that it’s unsustainable, and people will rationally play into fewer spaces where they can make money.
“If you can offer enough value you’ll succeed. But it has to be through the eyes of the customer in my view. And in the case of advisers the customer has to see more value than going through the other models.”
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