What can life insurance product development expect post Trowbridge?
Recently, we held a Shifting Gears breakfast session with a group of life insurance professionals to discuss some of the key disruptive forces facing insurance in Australasia, and the global industry as a whole. This is a guest blog from one of the speakers, Russell Hutchinson on the discussion he led.
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In March this year, the Trowbridge report took on the Australian life insurance industry. Most will be familiar with the controversial report and its repercussions, but if you need a refresher you can find a brief overview here. In short, the report has resulted in some sweeping changes to insurance advisory commissions after lambasting the conflict of interest involved in high commissions.
The dust is starting to die down in Australia, but a few questions remain - what does this mean for those of us nearby?
The global life insurance industry has been watching the developments with interest, speculating on how far the effects of Trowbridge could reach. Will we feel it as a mere ripple in still waters, or will the report instigate a landscape changing tsunami of regulation?
It’s time we start thinking about how life insurance advisor commissions could be restricted in our own territories, and what that means for products and pricing.
So what are the options?
We could face regulatory changes akin to the new Australian life insurance framework, or we maybe we’re looking at something completely different. This really could mean anything from full regulation of advisors and commission restriction, to a compromise that only restricts commission, to no change at all. We really can’t know for sure what will happen, but we need to be prepared for the likely outcomes. If stricter advisor regulation does come into play, here’s possibilities for insurers to ponder:
Less replacement business
The report’s main aim was to reduce harmful churn, but what implications will it have if successful? The idea is that less churn created by conflicts of interest is better for the customer, as their interests are the focus of purchasing decisions. This will also result in a higher threshold for customers to switch, meaning products must become more compelling in order to attract new business from competitors. It will become essential to take a more customer centric view on improving product features, price and advice facilitation features.
More emphasis on direct products
It’s possible that the importance of independent risk advisors give way to more direct channels. This could mean more demand for simple pricing, and open the door to more open comparison and competition of products and pricing.
Fewer third party advisors
Commission restriction could create an environment less conducive to third party advisors such as RFAs and AFAs, and more supportive of QFE advisors and direct product channels.
Competitive focus could switch
There is a strong likelihood that with more comparison activity, and higher competition on pricing, that priorities will switch. Pricing may become more granular, requiring a more customer centric approach and providing more options to consumers. It will also become essential to understand quoting and product selection behavior, as there will be more variation in comparison and more selectivity in product client matching.
These are just a few potential repercussions. Really, these suggestions are just designed to get you thinking. What is the future of product development going to look like, and how are you going to remain competitive? Whatever happens, it’s worth considering these possibilities now. After all: horse, barn door, you know the rest.
Russell Hutchinson is the Principal at Chatswood Consulting Limited, a consultancy that specializes in financial services management consulting for life insurers, banks, fund managers, general brokerages, and larger distribution businesses. He’s also a journalist, published in a variety publications online and in print. For more great insights from Russell, take a look at the Chatswood Consulting blog.