Models in Life Insurance (Australia) Autho

Evolving Distribution Models in Life Insurance (Australia) Author: Young Goh Abstract This paper intends to look at the life insurance industry over the past 10 years in Australia and how distribution models have changed over this time. How have distribution models changed in response to changes in societal perceptions and understanding of their need for insurance? What are the implications for the industry of these changes in general, and on the different functions within the industry in particular i.e. distribution, underwriting, claims, product design and pricing. Whilst the focus on models in Australia, developments in different worldwide regions (North America, Europe, South Asia and East Asia) have been provided for context. Preamble As is often the case in life, things don’t always turn out as expected. As I embarked on the writing of this paper chronicling the evolution of distribution, little did I expect the twists and turns that would emerge along the journey. Whilst there are many possible pictures or angles I could take in telling this story; the one I prefer the most is to think of distribution like a river finding its way to the sea. Trickling, twisting, turning through rocks and other obstacles, it finds its way through to its destination. Also, I did not find the Australian history of life insurance readily available. For some of us, this retelling of the story will be old news. For other readers, I hope this will serve as a brief introduction. Disclaimer Whilst every endeavor has been made to verify the information that is being presented here through the process of research and peer-review, the anecdotal nature of my interview based research on the historical elements means there is a degree of subjectivity and I anticipate that some readers will have a perspective of such events. Should this occur, my commitment will be to re-verify the new data presented and to update this paper at a later stage. Evolving Distribution Models (Goh).docx 2 1. Introduction The life insurance industry in Australia today is approximately $10b1 in annual premiums in force. The market includes 17 major life insurers, 5 major reinsurers and a number of Lloyds agencies2 . Insurance plays a vital part of Australia’s financial sector with strong prospects in light of relatively high levels of underinsurance3 remaining in spite of progress over the past decade or so. Significant opportunities therefore still exist for growth. In this regard, the Australian market, though mature, is similar to her Asian neighbors. Distribution remains key for life insurance as life insurance continues to be a product that needs to be sold not bought. The purpose for this paper is to provide a brief history of the changes4 within the distribution of life insurance in Australia. This includes a summary of the characteristics of different channels and their appropriateness for different market segments, which are factors that should be considered during strategic planning. This paper is targeted to younger Australian actuaries and others involved in life insurance that may not otherwise be familiar with the historical development of life insurance distribution in Australia. Australian actuaries may also find the comparison with the overseas markets useful. On the subject of distribution, entire books can be written. Therefore the scope of this paper is to limited to providing a high level narrative, a brief history, to set the Australian story in the context of her neighbours and to consider some of the causes/reasons behind the evolution of distribution. The research methodology adopted for this paper was mainly via interviews with senior executives with significant experience in the distribution of life insurance, supplemented by relevant material I managed to find. The rest of this paper is structured as follows: • A brief history of life insurance distribution in Australia • Commentary on the key channels – i.e. Retail, Group and Direct • Trends that have driven change in the past and that might drive change in the future • Opportunities going forward The value of history must lie in part in its ability to teach us how to avoid past mistakes and how to do things better in the future. To the extent that trends can be observed, they also open themselves to be exploited. This paper will conclude with an exploration of some observed trends and their implications. The key trends that have been observed are: • Regulation • Technology • The Consumer The companies that can foresee and take advantage of these changes can potentially stay ahead of the curve and come out the winners.