Business & Finance May 2012
At a time of great change in this crazy world, it is perhaps opportune to take a step back and look at the industry we all contribute to and have enjoyed working in for so many years. In the ever-ending search for boasting rights on market share, we find ourselves in a situation where a portion of the premium in our market is simply going from one Life Company to another, like a merry-go-round in a children’s playground.
Despite the independent analysis of our market, which currently is showing that overall premium income had reduced by -15% year to date, a number of the Life Companies continue to report an increase in sales numbers. Where is this business coming from? Is this new business? Is there some oasis of consumers willingly spending an increased portion of their household and business budget on new investments, retirement planning and family protection? While this is sometimes the case, the reality is that more and more frequently, the life insurance companies are now in the business of renting short-term premiums to meet short-term objectives of stakeholders. In doing so, we continue to spin the merry-go-round of premium, ignoring the commercial realities that industry stakeholders in other jurisdictions have begun to address.
This is obviously a difficult subject but one that all the stakeholders in our industry would do well to address as a matter of urgency. Competition amongst Life Companies, as with Brokers, is a healthy thing, particularly for our consumers who want and demand a vibrant market that ensures price competitiveness and value for money. However, are we really putting the consumer at the centre of our thinking in the current market? Or are we staying on the merry-go-round of re-circulating premiums in the hope that the current and significant down-turn in economic activity and consumer spending will simply go away?
In order to address this issue I think we need to firstly look at what independent analysts in neighbouring jurisdictions within the European Union have said about their markets and how they propose to/are addressing the issue. Ned Cazalet, a well respected independent UK analyst, concluded that some insurers were dipping into reserves and paying commissions for pension plans that would require customers to keep up payments for at least 15 years for the plan to be profitable, despite the fact that many pension plans only last for four years before being resold. It’s interesting to see the FSA in the UK now plans to ban commission based sales for group personal pensions in 2012. It argued in a strongly worded consultation paper that the “current commission based market model is not sustainable”.
The key point is that they have identified it as an issue and they are addressing it. One wonders do the same issues apply to us? If so, one also must wonder why the European parents of the plcs operating here are willing to address issues in one country of operation and simply ignore what’s going on in good old Eire?
Come on folks, let’s deal with the issue. We cannot ignore what’s happening in similar markets and cannot ignore how they are responding. Let’s drive real change in our industry to everyone’s benefit before we are driven to change by a higher force. This is an issue for us all, at least those of us who are proud of what this industry does, want to see it grow and want to re-establish trust at a time when consumers’ financial well-being is being challenged like never before. Yes, it is going to take real courage, its going to take all of us to sit down together and agree that perhaps, like our political establishment, it is now time for a new business model in our industry. We need to embrace more efficient business selling methods and realise that trust and truly independent advice can play a central role in any strategic business offering. The Life Companies must take the lead but their Broker partners must have a strong voice in this too. The transition will not be easy. Cash flow will always be a challenge. We owe this to our Broker partners.
There are some amongst us who would prefer to keep their heads in the sand. This is understandable but it is unsustainable. The establishment of an industry wide ‘think tank’ is now appropriate. The issues need to be addressed and the stakeholders need to pull the plug on the merry-go-round of premium so that life in the playground can once again be meaningful, rational and profitable for all of us in what will always be a highly competitive industry.
We have all shown in the past that we can work together and deal with the issues that arise. The impact of legislation and poor economic conditions from time to time are nothing new for this industry. Today, the issues are lower consumer spending on insurance, lapses, customer retention, debt due to claw-back, cashflow and above all trust in financial advice. These will not go away. But there are opportunities for those willing to embrace change. The issues need to be addressed and whoever has the courage to do it first and jump off the madness of the merry-go-round will be the winner…the real winner.