A thoughtful perspective on changes that could be made to the way insurance distribution is conducted by McKinsey is at this link. This is a high level paper - not too long - on the main concepts and challenges. The best parts for me were:
- The discussion of the discomfort the customer feels about the purchase process. Insurers need to own the fact that purchase processes are uncomfortable. Currently the response has been one-dimensional - reduce questions, reduce underwriting, and offer simpler products. That is the right response for only a portion of the market. Advisers, and especially larger adviser businesses with the scale to engage in IT projects and partner with insurers to renovate the process should examine this more closely.
- The chart of the number of contacts between customer and service provider. On average a client with life insurance has only two contacts a year with their insurer, although I have probably had more like four with mine. The number rises to an average of 15 for health insurance. Both are very low compared to an average of 400 per year with social media, and about a hundred for a main banking relationship. That highlights an often-overlooked fact: insurance is a low involvement category. Some marketers behave otherwise, at their peril. The important thing to remember is not to treat raising the number of contacts as a goal, but to focus on the relevance and value-add at each point.
Link to the report.
A recent AMP survey of more than 600 New Zealanders aged between 18 and 39 reveals that the biggest fear when it comes to loss of income was not being able to provide for their family.
'New Zealanders under the age of 40 have their priorities out of whack because most say their biggest fear is being unable to provide for their families, but half would take a $1,000 gift card over a year’s worth of life and income protection insurance'. says this article from AMP.
Money in the hand - people are like that. It takes real effort to get people to think long term, which is one reason that financial advisers have to be paid to do the job.
This article on Stuff.co.nz, by Susan Edmunds, discusses the benefits and different types of children's insurance available in NZ, plus the costs associated with them. It is a great article to highlight the high level issues in this type of cover - ideal for linking to from newsletters and social media content aimed at clients.
NZ website managemyhealth.co.nz gives you the freedom to manage your health and wellness online. It is a secure website which receives an individual's personal health information uploaded from their GP's (or other health practitioners) practice management system. It can also be used to store other health-related information which may not be recorded, such as other treatments you have received, or other medications that you may be taking.
Key benefits to using ManageMyHealth include:
- the freedom to manage your health needs - and that of your family anytime, anywhere
- access to your medical records - view medical conditions, lab results, immunisation records, allergies, prescriptions and share health information as required with other healthcare providers
- online tools to improve your health and track your progress online
The New Zealand Herald has a piece titled "New Zealand's Life Insurance Industry is Dying" written by Tamsyn Parker. I am sorry, but I have to disagree.
While it is true that there are some significant problems, some of them are well described by the NZIER report to which Parker refers, the industry cannot be said to be 'dying.'
The NZIER report is based on FSC data and overall is a solid description of some facts about the industry. It has not been able to lift the proportion of people insured. Most of the growth in the industry stems from a combination of rate-for-age increases and inflation indexing. Costs appear to be high and do not reduce much with scale. These are all true.
Some aspects of the report are difficult to interpret without understanding some oddities of the insurance industry. When NZIER points out that the value of net new business is much lower than the loss of existing business they describe a phenomenon which will nearly always be true of a market dominated by products with rate-for-age pricing. The method of reviewing the FSC stats identifies administration, marketing, and commission costs together as what remains after deducting claims costs. In most places in the report they carefully label this basket of costs, but the casual reader falls easily into the trap of reading 'distribution' costs as the same as 'commission' when only about half of those costs are commission, and that is only an estimate. The comparison of commission to total in-force premium is a simplification which has the effect of making an insurer with little new business look very efficient, and one with little in-force, as very inefficient.
Some parts of the industry appear to be in great health. Bancassurance has been growing rapidly, now accounting for about a third of all new sales. Direct insurance likewise, albeit off a low base. Group insurance looks flat. The number of people with private medical insurance (not part of the NZIER review, but definitely part of the wider sector) has been falling for some time - and has been grateful to just flatten out. Take a longer view and the growth has been, even in aggregate, quite remarkable:
Comparing premiums with GDP, excluding group insurance:
|| March 2016
| Premium in-force at the end of period $000
| GDP (nominal) $million
Comparing products with population
|Products in-force at end of period
|Population (mean in period to June 2015)
Which means that the number of policies or benefits has risen. NZIER rightly points out that there is no easy way to understand how many policies relate to actual people. It could be that many of the same people have added a benefit while many people remain uninsured. We know that is a problem from other research (such as the Massey University paper prepared for the FSC a few years ago). Look a little closer and you can see that the product mix is changing as well. The growth rate for life cover alone was a lot closer to population growth, but number of living benefits (income protection and trauma) more or less doubled over the decade. In that context the insurance industry has fewer problems than, say, dairy farming, and no one thinks that is 'dying'.
The industry has problems, but quite specific problems, definitely not a general malaise in which it is dying. Costs are too high. Grappling with a combination of 'no advice' sales, underwriting complexity, and increasing demands for the professionalization of advice from the regulator, there is plenty of work to be done.
Goodreturns has some commentary by Susan Edmunds in this Goodreturns article.
Links for reference data:
FSC Statistics 2016
ISI Statistics 2006
RBNZ Statistics 2016
Statistics NZ Historical population estimates tables.
This chart is from Chatswood Consulting's quarterly life industry review for the last quarter of 2015. The green line shows how many companies announced price changes in the quarter, the purple line shows how many lines of business were changed. The blue line shows the rolling average of the number of lines of business re-priced. You can see it was a very busy final quarter to 2015. The first quarter of 2016 was very quiet, but we have just had an announcement of a general repricing of most on-sales lines of business by Partners Life. More details on that next week.
In Fidelity Life's May Update on Apollo they released the following information:
Key changes made in this update include:
- Trauma Cover, Trauma Multi Cover and the Trauma component of Survivor's Income Cover rates increase effective 1st July 2016 for PlatinumPlus YRT and Mortgage Protector Plans.
- TPD extension rate reduction effective 1st July for PlatinumPlus YRT and Mortgage Protector for new and existing business.
- TPD extension rate reduction effective 1st July for PlatinumPlus Level Term plan for new business.
- Self-Employed and Established Proprietor employment status options have been renamed.
- Updated product documents, including updated application forms.
- Other bug fixes.
We will advise you of the scale of the rate changes when they have been reviewed.
Janine Starks writing in stuff.co.nz has this piece on exclusions. Starks advocates that consumers use advisers to pick their way through the policies. The article uses Quality Product Research resources to focus on the differences in exclusions between providers and to take particular aim at policies sold direct to customers. The general public often has difficulty comparing policy documents and understanding whether an exclusion is better or worse than another - even assuming that they take the time to read more than one policy document. Some good points are made - even if some of them may be uncomfortable for some insurers.
Susan Edmunds writes in goodreturns quoting research by NZIER based on Sovereign data that suggests a very high skew to top producing advisers in the industry and aims to estimate the impact of a possible cut in commission (by a quarter) on premiums at 6%. That is worth closer review as well. Link. Edmunds, also on, goodreturns tells us that Triplejump is restructuring. Link.
In case you missed it you can view the latest Quotemonster newsletter at this link.
Quality Product Research Limited has rated Southern Cross Life Insurance (underwritten by CIGNA) subscribers will be able to review the rating onwww.quotemonster.co.nz from the middle of next week. The product rates 91.6% in most situations (it depends on the sum insured) and has slightly more limited special events increase in cover provisions and slightly tougher exclusions than the highest rated products.