AIA Australia is the fastest growing life insurer in Australia. To find out why more than 2.5 million customers already trust us with their life insurance needs, and why partnering with AIA Australia will help you grow your business, visit AIA.COM.AU/RightLifePartner Fastest growing life insurer statistic from Plan for Life market overview July 2012. AIA Australia Limited (ABN 79 004 837 861 AFSL 230043) 09/12 ADV1270FP
special report Insurers locked and loaded, but consumers yet to fully engage Underinsurance will remain an issue in Australia while consumer engagement remains low. Simon Hoyle reports on how this issue is being tackled. W hen the market research firm Investment Trends delved into how financial planners are involved in providing advice on risk insurance, it found a market that appears to be close to saturation. Based on almost 930 responses, Investment Trends found that 93 per cent of financial planners are actively involved in providing advice on risk insurance. The fact that growing numbers of financial planners are engaging with risk insurance isn t surprising, but the level of involvement is now at an all-time high (or, at least, it s at the highest level in the eight years that Investment Trends has been tracking such things). The proportion of planners involved in risk insurance has increased by 20 percentage points since 2005, Investment Trends says, and the amount of their time planners spend discussing risk issues has increased from 17 per cent to 20 per cent, in the space of just one year. Investment Trends analyst Recep Ill Peker says that as more clients investable assets are directed to cash, term deposits and the like and the longer they stay there the more pressing becomes the need for financial planners to demonstrate some other sort of value in their service proposition. At the same time, the performance of life insurance companies has also improved, at least in planners eyes. Investment Trends says the number of planners who consider the insurance companies they deal with to be good or very good has increased by 5 percentage points to 82 per cent over the past 12 months. (See Table 1.) Peker says improvements in technology and websites are two of the key factors behind the improvements. Along with improvements in the insurers underwriting performance, planners are well armed and well supported to take the insurance message to the masses. Investment doldrums However, it s one thing for more planners to engage with risk insurers as a means of coping with the investment doldrums. It s another matter to get the public equally Partnerships are our strength
special report engaged. After all, only an estimated two in 10 adult Australians have a relationship with a financial planner, so even if every one of those people s relationships with a planner led to them being fully and comprehensively insured, it s still only a small proportion of the overall adult population. A greater proportion of the population is likely to have some cover, and most likely through their superannuation fund. While some cover is better than none, there remains concern that fund members might be lulled into a false sense of security, believing they have adequate cover when in fact all they have is their fund s default level of protection. It remains true that insurance is sold, not bought. Worryingly, more people say they d insure their pets than insure their own lives or incomes. Brett Clark, chief executive officer of TAL s retail business, says underinsurance is due in some part to how consumers view insurance as a category. Underinsurance is an issue, Clark says, but there s a little bit of mythology around this. I do think that Australians today are more aware of life insurance and the important part it can play in their lives more than ever, Clark says. Having said that, I still think there s a long way to go. Consumers do still think about life insurance less than what they should. And when we asked them to think about a package of insurances home, car, motor, travel, pet and then their own personal life and income protection insurance life and income protection insurance is ranked lower than those other categories of insurance. And from a consumer s perspective, all they really see, I believe, is insurance as a category. At this point, I d say, they understand the differences between those insurance products and how they respond to different events, but they do see the category of insurance as one, and then they make different assessments about the value of those products within that category. We need to think about our business in the context of that consumer framework, around, well, there s a package of insurances here that I need, to protect all the things that are important to me car, home, motor, pets and travel and we re competing in that broader insurance family, rather than just in a narrow sense around life and income protection. She ll be right Tim Tez, head of product and marketing - distribution and marketing for AIA Australia, says it s the old she ll be right attitude that remains the greatest barrier to better consumer engagement. TOP OF THE CLASS Top three insurers ranked by overall planner satisfaction: 1. Asteron Life 2. AIA Australia 3. Macquarie Life Top five insurance providers, by number of primary planner relationships: 1. OnePath/ANZ 2. AMP/AXA 3. MLC/NAB 4. Asteron Life 5. TAL Source: Investment Trends 2012 Planner Risk Report We re competing in that broader insurance family Increasingly that s changing, as people become more aware of their risks and want to protect their lifestyles, and things like that, but fundamentally, we ve got a she ll be right attitude in Australia, Tez says. Traditionally, it s been hard to engage with insurance as a topic life insurance, in particular. And we haven t helped ourselves. We ve come up with very complex products and complex terms and conditions, and we haven t demonstrated value strongly enough to the end customer. As an industry we have not done enough to demonstrate value in the product and the peace of mind it provides. And to be honest with you, we have not provided enough valueadded benefits that engage the customer as a person, rather than just as a transaction. Risk products have improved immeasurably over the past several years; the technology that supports underwriting and sales has come on in leaps and bounds; and the 2012 Life Company of the Year ANZIIF
special report claims process has largely been re-engineered to make it as streamlined and as straightforward as possible for consumers. Yet there s a prevailing attitude that accidents, illness or death are always going to be events that happen to someone else. Or if they do happen to them, people assume the government will provide a safety net, or they ll somehow find another solution. A survey of consumers a few years back by ING found that a worrying number of people said they would sell assets to cover the cost of hospital treatment, rehabilitation or income replacement or possibly worse, that they would rely on family - should the worst happen to them. Tez says that on an objective basis, the cost of life insurance in Australia is relatively low in global terms. He says there s been an element of product complexity lots of fine print and terms and conditions that consumers have sometimes found a turn-off, or have used as an excuse not to engage. Tez says the success of direct insurers advertising heavily on television, often during the day suggests that if products are structured relatively simply and the benefits of having adequate insurance are promoted correctly, consumers will engage. Simple language One of the [distribution] models that has grown the most is direct response to television ads, he says. It s sold the benefits. It s more simple language. It s taking the clutter out of the products and it s really selling the benefits. It s striking a chord with the end consumer. Tez says the risk products the planners recommend tend to be a lot more comprehensive and provide wider coverage than products sold directly. More often than not, they ll also be more cost effective, because there s a complex underwriting process, he says. Because of that complexity, in those types of products, the adviser will help guide the customer through it. An adviser once described it to me like this because a few years ago there was a big debate about whether the direct channel was in conflict with the advice channel and he said: I do more than just sell insurance. I ve got a whole value proposition around advice and looking after my customers and giving them peace of mind. If through direct insurance they ve got some awareness and they ve got some coverage which is better than none when they come to see me, it makes my job so much easier with my value proposition to them. There is evidence that consumers will engage with an insurance offer if it is pitched correctly and resonates with them, even if it s more complex than some of the products 100% 80% 60% 40% 20% 0% 2005 Source: Investment Trends Proportion of planners advising on risk 2006 2007 2008 2009 2010 2011 offered via the direct channel. James Coyle, general manager of marketing and communications for AustralianSuper, says that the fund rejigged its insurance offer about two years ago and went to members with what it described to them as a special offer. Members could get access to increased benefits without the need for additional underwriting, Coyle says. We did quite a bit of work, writing out to members, a special offer, here was an opportunity. It did highlight that they had this [insurance] benefit, and that they had the opportunity to get more, above the default levels of cover, up to a point, without additional underwriting. Obviously, if they went to much higher levels it did require underwriting. We got a pretty good response, and we also put in place additional online tools, insurance wizards and we ve now also got an online underwriting tool. Coyle says AustralianSuper judges the success of its insurance campaigns by the percentage of members that have default cover. The lower the number the better if a member has made a conscious decision to engage with the fund and alter their cover, that s a positive result. Only 5 per cent of our members had non-default cover, Coyle says. So 95 per cent of our insured members had default cover. Now it s 15 per cent have non-default cover. So it s been a dramatic increase. You can frame that another way and say that 95 per cent had default cover and now it s 85 per cent. But AustralianSuper has more than one million members, so in terms of the number of people who engaged with the fund on insurance, it s significant. Coyle says many of the issues that super funds face with 2012 2012 Life Company of the Year Financial Review Smart Investor Blue Ribbon Awards 2012
special report trying to get members to think about insurance are the same as the issues the funds face getting members to engage with superannuation generally. People often do not think that bad things are going to happen to them, he says. But when it s a car accident or a house fire or those sorts of things, people are prone to say, well, my car s worth $30,000 and I can t afford to lose it. They think less about the accident that s going to mean they can t work any more and they certainly do not like to think about dying. It s not important when you re a 20-year-old; it s not important when you re a 25-year-old. It might become important when you get married; it is much more likely to become important when you have kids. I think it s those sorts of catalysts. Initial contact And like superannuation, a member s initial contact with the fund tends to be online, or via the phone, for simple issues. But Coyle says that advice comes into play for members whose needs are more complex. Advice is a very important part of this picture, he says. So in most cases, once you re starting to get to serious levels of cover, we d want most people to be seeking advice. The fact that people can change their cover and get a little bit of extra cover through special offers is a really positive thing, but in most cases we d suggest it is something they need advice on as cheaply and easily as possible, but get some advice. AIA s Tez says the keys to engaging consumers are largely the same, whether the consumer is targeted via the direct, group or advised channels. We as a company let s leave aside the product for a moment need to take the focus away from product per se and start delivering really value-added services, he says. We ourselves have launched WeCare, which is a grief counselling and support service for people, he says. That s not a product term or condition, but what it does is gives the member the most level of support when they need it the most. That s not about product. It s about treating the customer as more than just the transaction. It s things like that, that we need to start focusing on. We need to do a better job of creating some demand from customers for the products offered, whether it s by advisers or group-insurance trustees. We ve got to create an awareness for insurance, and then a demand for insurance and that s above any product. TAL s Clark says that when people value protecting themselves as much as they value protecting their cars Frequency of event High Low Low Motor Private health (especially extras ) and their pets, I ll really know we ve been successful. He says overall awareness of life insurance is greater than it used to be, and there are a few different elements behind that. The superannuation industry and the way they have approached group insurance has been the single most effective weapon against underinsurance that we ve seen in the history of the Australian life insurance market, in my view, he says. The job that they have done protecting millions and millions of Australians has been outstanding. And I m sure that s raised awareness. Clark says it will take more than just superannuation to solve the engagement issue. What you ll find is that even though we re going to 12 per cent contributions - it will be a basic level of retirement savings for most people and it will probably, in that environment, contain a basic level of insurance for most people, he says. When you look to the adequacy question, you ll look to other areas of the market to satisfy those adequacy issues. That s where things like advice components come in, where you re tailoring other Home Financial consequence of events Source: TAL Life insurance High insurance arrangements outside of superannuation to meet those adequacy needs. Across the board Life insurance companies will engage with customers across the board, Clark says. With a more stratified advice landscape where you can be anywhere from no advice to full advice, and anything in between I think you ll see different products plugging into that spectrum of advice, and you ll see complex advice supported by highly flexible products to - at the other end a low-advice framework supported by simpler products, and a range of product in between, he says. It requires scalability in the product manufacturing component of your business. But if you can work across single-product chassis and singletechnology back-ends, it can be done. Engaging with customers will also mean empowering advisers to take the product to where the customer is and that requires effective technology. The technology strategy is about ensuring the interactions between the adviser and our business are pointed at delivering first-class outcomes for the customer, he says. right partner
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