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Life insurance at tipping point: Industry leaders

Life insurance leaders have pushed for immediate and authentic change, lest current legacy business models and products hinder the growth and sustainability of the industry.

Speaking at the Financial Services Council's (FSC) 2020 Life Insurance Summit, APRA general manager of life insurance Suzanne Johnson, RGA Australia managing director Mark Stewart, Zurich Life and Investments Australian chief executive Justin Delaney, and AMP Life and Resolution Life Australasia chief executive Megan Beer said there was an urgent need for greater sustainability, viability and affordability of life insurance products.

"Current market conditions here are incredibly challenging," Stewart said.

"No matter which perspective you look from - whether it's the community, the customer, shareholder, reinsurer or so on - I think there is quite a lot of commonality of dissatisfaction with the status quo and there is a fundamental need for change."

Some of the challenges plaguing the industry, such as issues surrounding disability income, have been around since the 1990s, he said, also noting that life insurers had already seen evidence of reinsurers and other stakeholders limiting capital investment in the industry.

"Incremental change hasn't worked; we need fundamental change, but I think it needs to be now," Stewart said.

"There is a fair question as to whether life insurance will continue to be available and affordable going forward without the change, and I think there is also a fair question as to whether shareholders will continue to fund future business if their outlook for returns isn't improved over what it has been.

"This is a time where the industry really needs to come together and create a desire for change... There has been a lot of commonality in views around the awareness of the need for change, but we need to move that awareness into a desire. I don't think we have gotten to that point yet, and until we do, we are just going to keep sitting around talking about what needs to be done."

Similarly, Beer argued that - like many other mature industries around the world - the life insurance industry needed to change its business model.

"For the last 20-30 years we have seen ourselves as a growing market; we were distribution led, customers don't see our products as something they really want to go and purchase; it's something they know they need to have," she said.

"But as we have become mature, the need to focus in on growing new sales is not as important for the overall success of the industry and that's why I think we are at an inflection point, not just from a sustainability lens but also from a mature market lens.

"I think there is a role for different and sustainable business models emerging that can really help the industry thrive and survive."

Delaney agreed, noting there had been an "acquisition bias" in the industry for a very long time.

A major challenge facing the industry was the interplay between the need for new business and products and managing the needs of the in force book, he said.

"Ultimately, I think we have to find a bridge from legacy products to whatever the new sustainable product will look like, and I think that will be critical moving forward," Delaney said.

Information and data are key themes that will help boards better understand the complexities of industry, he said.

"The acquisition bias that we have had in this industry is focused on investing in new customers, but there is less investment in the data that's available," Delaney said.

"We need to continue to give our boards as much transparency as possible and ... make sure boards have enough information to make those decisions."

The coronavirus pandemic had highlighted the industry's ability to pivot quickly when needed, he said.

"When you think about the impact of COVID-19 on us all, we are thinking about things differently, not just in our ability to be bold, but in our ability to go back to basics and think about what we really need," Delaney said.

"These provide an opportunity to build a bridge between our existing paradigm to something that is better for those customers."

Stranded customers, who can't exit a product because they cannot be re-underwritten, are most at risk, Delaney said.

"We really need to think long and hard about how we can build that bridge to enable those customers to move to a product that meets their needs and that they can afford," he said.

Beer argued that change would not occur in the industry lest it shift away from an acquisition model.

"In an acquisition led model, where Monday to Friday you are thinking about new customers and maybe on Friday afternoon you are thinking about existing customers, you are never going to really think about how to tackle some of those challenges," she said.

The industry needed to think differently to solve these problems, she said.

"I don't think there is a macro solution; I don't think we need change to the Life Act, I don't think we need to change advice models," Beer said.

"I think we really need to get underneath customer segments and ask them that question: 'Are these products meeting the promises that we sold to customers many, many years ago?'

The industry needed to be held to account, Beer said.

"As an industry we've invested in acquiring these customers, we have made them these long term promises, and we need to find those solutions," she said.

"We need to look at ourselves first and go back to those capabilities to help us solve some of those problems."

Read more: APRAFinancial Services CouncilJustin DelaneyLife Insurance SummitMark StewartMegan BeerRGA AustraliaSuzanne JohnsonZurich Life
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