From the disastrous evidence at the Hayne royal commission hearings, you would begin to wonder how Australia’s life insurance industry is ever going to scrape itself off the floor to rebuild its reputation.
For instance, AMP has not only managed to get hammered for charging dead people for financial advice, this week it also copped a flogging for charging dead people for their life insurance cover.
As Commissioner Kenneth Hayne noted in his usual dry style, “Charging premiums for life insurance to someone who is dead? That’s the position, isn’t it?” And it was.
Just this week, we learned that Allianz declined to do anything between the end of 2015 and this year about 120 specific errors and misleading statements on a supposedly refreshed website aimed squarely at holders of its insurance policies in areas such as car, home and life.
It’s an absolutely lousy look, most particularly because in many cases insurance cover is a grudge purchase.
It was ClearView Wealth chief actuary Greg Martin who pointed that out last week, noting of life insurance that, “People know they should do it, but it’s not something they willingly run off to do without usually a bit of motivation, oftentimes from family or friends or other people.”
That realistic assessment was swept away in the maelstrom created by the emergence, on the same day, of news that ClearView had fessed up in 2016 to having made between 300,000 and 303,000 cold calls in breach of the law, which prohibits hawking without first sending a preliminary Product Disclosure Statement.
What the industry can do
So where does that leave the life companies? They can start by spiking any thoughts of direct selling, if they haven’t already, but that apparently represents only a maximum of 5 per cent of sales, so they can learn to survive without that. But let’s try to pick our way through some basic principles to try to work out what the industry is going to have to do to reboot.
Michael Harrison, the chairman of dealer group Synchron, who not only used to be a life insurance adviser but also ran Zurich Life, believes it is going to be more important than ever for life cover to be sold by advisers who have a deep understanding of why people might need it.
“Over the last decade, the emphasis in the financial advice business changed, in that people started to believe they were financial planners and not life insurance advisers,” Harrison said. “Life insurance is the only instrument that transfers human risk from the people who don’t want it to those who do.”
Considering how often in recent years financial planners have been criticised for being ex-life insurance advisers, that’s quite a turnaround in perception he’s talking about. Perhaps the fact that the life industry has joined the financial advisory industry in the doghouse of public opinion means it’s not a bad moment for both industries to have a rethink.
“Morale in the industry is at an all-time low,” he said. “Older advisers are telling everyone they want out. They don’t want to go though the educational process as now required and there are now more life insurance books for sale than I have seen in my entire career.”
He makes the point that however bad the life industry looks after being dragged through the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and justifiably so, its sins have in many cases been based more on corporate negligence than outright dishonesty.
Harrison also reckons the demutualisation of so many life companies over the last two decades has been a major negative, taking away the reserve buffer provided by their statutory Number One fund that allowed them to hold premiums steady, in contrast to the post-demutualisation practice of handing surplus cash to shareholders who might well not be policyholders.
He says a consequence of those rising premiums has been that healthy people have let their policies lapse, leaving a cohort of sick policyholders who know enough about their declining health to hang onto their life and total and permanent disability cover.
“That is creating a real problem for insurance companies,” he noted with emphasis.
So what do we do? Nationalise the life industry? Harrison is quick to point out that such a move would be very expensive.
“I made a submission to the Trowbridge Inquiry, which estimated that providing adult Australians with $500,000 of life cover each would cost another 3 per cent on top of the Medicare levy.
“Plus, that might still leave families short if [they had] a lot of mortgage debt,” he adds. “Other people have estimated that families need $1.6 million to retire on and who’s going to make up the difference?”
Back to soft skills
He says the life industry is going to have to go back to teaching people the soft skills required to explain to potential policyholders why their families will benefit.
“If you go into a room and ask people who’d like to buy life insurance, you won’t see many hands go up,” Harrison says. “But if you ask them if they’d like to make sure their family is financially looked after in case of illness or accident, you’ll get a very different response.
“I’m not saying we shouldn’t fix the industry and work to create a more secure, ethical and honourable culture, because we must.”
“The industry does a great deal more good than harm.”
Col Fullagar, an industry veteran whose Integrity Resolutions business advocates for victims of claims difficulties in life insurance, says modern technology could quickly swing the balance of power back in favour of the policyholder.
“You could fix the industry virtually overnight if you had a kind of TripAdvisor equivalent for consumers to rate insurance companies,” Fullagar argues. “If you had a situation where licensees had to score 4 out of 5 for client service before their policy offerings were accepted on approved product lists, and also tied executive bonuses to a similar scoring system, that would change the focus overnight.
“Of course there are people on the existing TripAdvisor site who distort the system by deliberately posting nasty reviews of restaurants and hotels but most consumers are smart enough to work their way through that sort of distraction.
“Giving some power back to the consumer will change insurer behaviour and, overall, it’s critical that the insurers focus seriously on the issues that the royal commission has laid bare.
“Somehow or other, the insurers have to get religion.”