The Festival of Life Insurance

There are three federal inquiries into financial services underway right now, and they’re all investigating life insurance. At the Life Insurance Claims Handling Breakfast in Sydney last week, Peter Kell, Deputy Chairman of the Australian Securities and Investments Commission (ASIC), mentioned that ASIC staff are referring to this as the “Festival of Life Insurance”, a remark which drew nervous laughter from the audience.

The life insurance industry is in the trenches, and everyone knows it. Despite ASIC’s recent investigation into life insurance finding no evidence of cross-industry misconduct in claims payments and procedures, poor public perception of the industry persists.

Reading the recent media reports on the topic, you’d be forgiven for thinking that the solution to the problem is simple: pay all genuine claims in a timely manner and everything will be fine. But it’s not that simple. The ASIC investigation found that over 90% of claims are already being paid in the first instance.

Life insurance should be more than simply writing a cheque to the right person at the right time

Life insurance should be more than simply writing a cheque to the right person at the right time. It should be a holistic service offering that gives peace of mind to customers when they’re healthy, and the support they need when they aren’t.

There is a societal need for life insurance, and customers recognise this – PwC’s recent Future of Life Insurance in Australia report states that 78% of Australians view life insurance as important. But despite over $8 billion in claims payments last financial year, customers clearly still feel they are not getting what they need.

A few years ago, I met a Tibetan monk who was visiting Australia. He asked me what I did for a living, and I responded that I worked in life insurance. “What’s life insurance?” he asked. I explained the concept of people paying a small amount of money each year to an insurance company, which would pay a large sum of money to those who were unlucky enough to die or get so sick they couldn’t work.

The man gave me a quizzical look and replied that he would have no need for such an arrangement: where he lived, when someone died or got sick, the community came together and took care of them and their family. The sick and injured were nursed back to health and, if they didn’t fully recover, they would find alternative ways of contributing to their society. The bereaved would be supported both socially and financially by their friends, family and neighbours, and would return this support in kind when they were able.

In our increasingly dislocated and isolated modern society, sources of community support are harder to find

It would be easy to argue that our system – with agreed value payouts and statutory capital reserving – is more robust than simply relying on the kindness of our community. But that would ignore the fact that, when a tragic event causes loss of life or disability, money alone is insufficient. And in our increasingly dislocated and isolated modern society, sources of community support are harder to find.

We have already seen a greater focus from life insurers in recent years on rehabilitation, empathy and wellness during the claims management process, and general health and wellbeing offerings are becoming more common as well. AIA Vitality, for example, has been a stand-out initiative, and other insurers have partnered with third party health providers to offer unique benefits to insured members. But clearly there is more we still need to do across the entire product life-cycle.

Tomorrow’s Insurers will need to be in step with customers, not only at claim time but proactively during underwriting as well. Providing quality health and wellbeing education, tailored for those with medical conditions impacting underwriting terms, will also go a long way to building consumer confidence and trust.

Throughout the ages, festivals have brought communities together, strengthened their bonds and celebrated their shared purposes. I hope we can use this Festival of Life Insurance to come together as an industry and do a better job of supporting our customers socially and emotionally, as well as financially.

Reshaping the Life Insurance Ecosystem through Customer Shared Value

There is little doubt that the life insurance industry has been cast in a rather unflattering shadow of late. The days of complacency and a ‘one size fits all’ traditional approach are coming to an end, so now is the time for a refresh and true innovation.

With more than two decades in senior insurance and consulting roles, I have had the bird’s eye view of insurers and superannuation funds’ insurance practices, and see the challenge of successfully aligning shared value cropping up over and over again.  This needs a complete strategic refresh.

Over the next few weeks, I am going to write some articles that address the concept of creating shared value through insurance partnering and how this would strategically and practically apply across the life insurance value chain.

No life insurance organisation is an island; each must exist in an ecosystem of its making.

No life insurance organisation is an island; each must exist in an ecosystem of its making

What does the life insurance ecosystem look like?

When we think of an ecosystem in life insurance, at the most traditional level this covers advisers, customers, reinsurers, insurers and regulators, and some third-party administration providers.

Today and in coming years the life insurance ecosystem will rapidly expand to include new, non-traditional insurance sources, and will be driven by a competitive challenge to find smarter, more efficient, more cost effective and customer-centric ways to do business.

Some examples of this are the integration of wearable devices, doctors accessing and providing new data to support patients’ return to work and better health outcomes, customer segmentation models, and leveraging of health and banking data.

The level of change to the traditional ecosystem brings significant opportunities to start aligning smarter shared-customer-value partnering arrangements.

What is Shared Customer Value?

Creating shared value (CSV) is a business concept first introduced in 2006 Harvard Business Review articles. The central theme is that the competitiveness of a company and the health of the communities around it are mutually dependent.

In the follow up 2016 HBR article “The Ecosystem of Shared Value”, Mark Kramer and Marc Pfizer emphasise the need to assess the conditions to advance shared value, which businesses need to foster to gain competitive advantage

The article explores the need for fresher thinking and collaboration as key traits to enhancing shared value. It focuses on 5 key elements of collective impact:

A common agenda: shared vision for change and a joint approach to reaching a solution
A shared measurement system: how success will be measured and reported
Mutually reinforcing activities: each stakeholder focuses on ‘what it can do best’
Constant communication: structured communication to build trust and momentum
Dedicated ‘backbone’ support: to ensure that all working groups remain aligned

How does Shared Customer Value apply to the life insurance dilemma?

Whilst a lot of energy has been spent recently in the life insurance industry in attempts to get closer to the customer and enhance service, unfortunately much of this focus has been inward and not enough yet has been done to leverage other ways of thinking.  As a result, there is still an inward focus on designing processes and systems and services to support the business model rather than the customer.

Simply put, there is still not enough being done to ask the customers what they think. They are the ‘end user’, so shouldn’t we be asking them more often to help us design our insurance products and services?

Simply put, there is still not enough being done to ask the customers what they think.

Customer-led innovation requires a holistic, strategic focus and a re-set. This won’t happen overnight and nor should it.

We need to focus on the claims and underwriting value chain. The ease, quality, speed and simplicity of the underwriting and claims handling processes, tehcnology and communications is where I would recommend an initial focus.

A shared customer value focus means that you need to expect to be openly critiqued by your customers on the services you provide today. But you need to ask them how they would like these services to be tomorrow if we are to move forward.

Customer feedback needs to be as close to real time as we can get, allowing insurers to test new concepts, refine and correct as they go.

Customer feedback needs to be as close to real time as we can get

In my next article, I will explore how shared customer value can be successfully embedded across the insurance value chain, what insurers and super funds need to be doing, the ever-critical role of integrated marketing, and the new skills required to strategically and structurally support the operational value chain and engine rooms of claims and underwriting.

In the meantime, if you would like to discuss how an Independent Insurance Review can support your customer and insurance innovation strategy, drop me a line here and we can grab a coffee. I can share with you more on why your customers are worth it and my top 3 areas in 2017 to start investing in.

Balancing the Trust Deficit. Is 2017 the year?

Successive Australian Federal Governments, and indeed many others around the world, have seen economic deficits balloon over the past decade to levels so staggering, that the numbers involved seem impossible. Still, these deficits will be addressed through prudent fiscal policy. The gap is quantifiable, although immense, and proven strategies for dealing with the complex nature of balancing spending with earning can be employed to achieve balance. Or so the theory goes.

The past year saw a different type of deficit balloon across most aspects of the Australian financial services landscape. A deficit in trust.

Cynics would argue that trust is perpetually in deficit where it relates to matters financial. But, even by their standard, 2016 was an exceptionally poor year.

With superannuation, advice, insurance, lending and retail banking all sharing the gong for trust erosion through scandal, the question is whether they can collectively turn it around.

It’s not an easy problem, or suite of problems, to solve. They vary by sector and they vary in scale. But, when viewed in aggregate, it’s easy to see why the Australian public think the financial services sector has a brand problem.

Let’s take a look at superannuation, insurance and advice.

The trust problem for superannuation funds is mostly self-inflicted. For many Australian’s there’s a deep-seated lack of trust in anything long-term. For superannuation, that manifests as a lack of belief that funds will deliver a meaningful return over time.

Just like Bunnings has made every moderately able weekend warrior think they’re a builder, self managed superannuation funds have created an outlet for those with delusions of investment grandeur.

Put plainly, there is a lack of trust that APRA regulated funds of either persuasion will deliver a better return than going DIY.

There is a lack of trust that APRA regulated funds of either persuasion will deliver a better return than going DIY

There is more than enough evidence to refute this, but with local media being obsessed with short term performance, every fluctuation in performance feeds the lack of belief.

Rather than shift the conversation, the industry has focused on promoting annual returns and awards. These only serve to keep the focus short-term and provide the naysayers oxygen.

Some parts of this are easy to address, but shifting our culture away from passionate self-belief is tricky. Just look at Bunnings profits.

More easily addressed is the lack of trust created through industry in-fighting. The constant refrain from both retail and industry funds that the other can’t be trusted, is unhelpful to say the least.

Imagine if Toyota started advertising its cars by saying not to buy a Mazda because the brakes are sketchy. Or Qantas promoted itself by saying that Virgin don’t maintain planes.

Content such as that contained in the recent Joint Parliamentary Committee submission by Bernie Fraser is another example of low-brow self-promotion at the expense of trust in the industry.

Shifting to promote benefits rather than seeking to accentuate perceived weaknesses in others would result in a massive change in public perception. The current conversation echo’s parliament, and let’s face it, no-one trusts any Australian political party at the moment.

It’s fair to say that 2016 was a shocker for the insurance industry. General insurers and life insurers all took huge hits to credibility. Most would agree that CommInsure took the heaviest blow. Getting an explicit mention in APRA’s submission to the Joint Parliamentary Committee on the life insurance industry, certainly stings.

Trust is a fickle friend, it’s hard won and easily lost. Across insurance there are more own goals, missed opportunities and self-inflected wounds at the root of the trust conundrum than actual issues.

An opinion piece by Adele Ferguson, criticising both the approach and findings of the recent Deloitte independent review of CommInsure, highlights the ease with which media can manipulate the trust deficit.

Rather than confront or defend, the industry should be collectively broadcasting the good news stories

Ferguson tugs on an emotional chord with readers, one that shouts ‘you can’t trust these insurance bastards!’ CommInsure is the target of the moment, but this emotional approach is a familiar refrain.

Drawing on emotion is easy, especially when trust is low. Rather than confront or defend, the industry should be collectively broadcasting the good news stories. After all, they far outweigh the genuine errors.

I don’t mean each insurer wheeling out the ‘happy customer’ cliché, I mean a genuine industry-wide communication exercise, from parliament to the classroom, that puts the positive facts on the table.

There’s more than enough positive emotion to drown out those in the media with a vendetta. It’s also important to acknowledge past failings and to make good where appropriate. But that should be part of the discourse, not the only conversation.

Financial Planning
When I think of industries with a branding problem, financial planning is at the top of my list.

Whether you see rogue operators, poor transparency, repeat offenders or the general perception of product flogging as the biggest issue is moot. They all get an airing on a seemingly interminable cycle.

The fabric of the relationship between a financial adviser and a client is almost entirely predicated on trust. The arguments and counter arguments about the integrity of those in this profession that are played out in the media, have eroded that very fabric to tearing point.

Many advisers that I speak to have not managed to bridge the relationship gap beyond financial products

The reality is simple. The vast majority of financial advisers are good, honest people with a genuine desire to help others enjoy the lifestyle of their choosing. So why the lack of trust?

Scandals are only one factor, undoubtedly a crucial one for some clients. But I think the issue runs deeper than that. Many advisers that I speak to have not managed to bridge the relationship gap beyond financial products. All roads still lead to an SoA.

That the industry conversation is only now talking about goals or objectives based advice is double-edged. It’s indisputably the only path forward, but to an informed audience it raises the spectre of ‘what was happening before then?’ That the Best Interests Duty (BID) had to be legislated raises that same doubt.

Increasing doubt results in diminishing trust just as night turns into day.

As with superannuation and insurance, the financial planning industry needs to unite to bring the positive voice to the table.

For each of these sectors, the conversation needs to move from being about the industry to being about its customers.

Keeping APRA happy: insurance tips for trustees

The recent release of APRA’s insights means we should be closer to understanding what is expected of RSE licensees’ on governance and oversight obligations for the provision of insurance. Are we?

In 2014, APRA were pleased with progress, pats-on-the-back all round. Most of the industry had put in place at least the framework and policy architecture for SPS250 and enhanced trustee covenants of SIS Act. All sounded encouraging. APRA’s grade for this effort was a solid pass, possibly even a minor credit for extra effort.

So what’s changed in the recent review? This time around, APRA has learnt through insurance thematic reviews across a broad range of RSE licensees.

APRA’s observations now range from a luke-warm ‘needs improvement’ to a downright frosty ‘needs significant improvement’.

In my first blog in this series I commented on the need to focus on embedding the IMF and align good governance top to bottom. I am glad to see APRA calling this out and giving some examples of what needs to be done.

APRA wants RSE’s to demonstrate they’re taking this seriously and that they can tell the difference between compliance and effective risk management. Superannuation funds need to do a better job of embedding stronger governance, and not just at a board level, APRA wants to see this on the shop floor

So let’s consider the key themes and group them:

Governance & oversight – improving oversight on the ongoing operation of insurance arrangements and not simply making it an exercise at tender and renewal time. APRA provide a more than helpful hint that they expect good practice to start with, independent benchmarking of all insurance arrangements (these include admin, underwriting and claims) and the IMF to support members’ best interest and their ability to pro-actively identify necessary triggers in place for these reviews.

Embed the IMF – APRA’s comments here are perhaps the toughest. They call out that “linkages between IMF and Risk Framework (RMF) are generally poor”. The message they’re sending is to quite simply, get this done.

Underwriting – this time around it gets a solid mention, with APRA noticing several gaps. They call out “substantial improvements warranted” and better linking to the IMF including clearer roles and responsibilities, and extra oversight of underwriting process, quality of decisions and trends needed. Observing the current transactional level of monitoring services standards, some examples of good industry practice were cited around reviewing complaints and declined decisions. They also call out the need to measure the impact of anti-selection and the practice of underwriting medical loadings being waived.

Claims data is the tea leaves that we can use to predict the underwriting future

Frankly, not before time, it is pleasing to see APRA come up with clear direction on the current lack of understanding of the true impact poor or inadequate underwriting. The only other obvious linkage I would have liked to be called out is the need to understand the downstream leakage impact of increasing claims.

Administration systems – the common limitations in legacy systems again receive a mention. There’s passing recognition of enhanced access for members online, however whilst improved member access is great, I question whether it addresses the problem.

For me, I would like APRA to have spotted the implications that these poor quality and outmoded systems have in driving poor underwriting practices.

If systems cause funds and insurers to operate outside their own risk appetite, we need to investigate and quantify the loss and put in place minimum manual risk processes and controls in the short term, just while technology catches up.

Claims – rates a much nicer mention this year, however similar to underwriting, there is plenty of room for improvement, particularly through the IMF and increasing oversight and monitoring.

APRA refer in general terms to claims as being a “developing area” and mention the time to access claims, providing support to the claimant to return to work (RTW) and enhancing data collection as areas of ongoing opportunity.

The paper is APRA’s attempt to draw out good practice and I applaud them for trying, but in this case I suspect they’ve simply raised more questions and muddied the waters.

If you’re a CEO, COO, CFO, CRO or Head of Product, these are the five focus areas that you need to concentrate on to achieve a ‘pass’ or better from APRA next year.

  1. Operationalise your IMF and Risk Framework by identifying linkages through the IMF and align to the overarching risk appetite. The issue here is that there is no industry standard to cut & paste, you will need to think strategically and I recommend looking outside the traditional life insurance industry for best examples, global best practice is a good place to start.
  2. “Inspect what you expect” – Independent benchmarking reviews of third party arrangements and insurance providers are more than overdue. This requires a holistic review across entire lifecycle, benchmarking the efficiency of each member interaction, its timeliness, and effectiveness of claims and underwriting processes by all service providers. This responsibility sits firmly in the RSE’s camp. These are your members, you need to be getting the best deal at the right price and on the right terms.
  3. Review the Underwriting value proposition. Consideration of the impact of too much or too little underwriting must happen. So must top to bottom identification and quantification of potential resulting leakage. So far this is a missed opportunity and APRA are spot on.
    The cost of underwriting needs special consideration and also a look into how more effective processes can be used to benefit the member. The fund needs to be comfortable they are doing what was intended and that the risk is properly priced for. I also suggest looking more closely at the downstream impacts to increased member claims. Product shouldn’t escape scrutiny and nor should the assessment of the occupational ratings allocation process; this is essentially the start of underwriting and where obvious leakage occurs. From this review, at a minimum there should be a business case to consider future change for increasing sustainability and fund differentiation and most of all introducing choice for the member with more affordable alternatives.
  4. Targeting Claims Deep Dives – In addition to my first focus area and need to operationalise the IMF and RMF to support better oversight of the claims management process. I would also like to specifically call out the need to identifying trends and ways to improve premium sustainability through deeper and granular claim insights. How well do we know our employers and large corporates? Yes we know the data is sparse or non-existent. Reviewing the end-to-end claims lifecycle, identifying and targeting poorer performing employer funds is a great place to start. This doesn’t mean simply start at claims notification, go back a few steps to properly understand the root causes.
  5. Develop an Insurance Innovation Framework – all funds need their own tactical and strategic plan. This increases operational, trustee and risk team’s learnings and opportunities to hone skills and embed new practices and capabilities into these teams.
    This practical initial activity calls for a holistic approach that operates on multiple levels, blends traditional approaches, fund vision and strategy with incremental improvements supplemented with industry foresight and emerging trends. At the same time, needs to consider opportunities for higher value activity that has clear measurable benefits. These combined approaches through a structured framework can drive reinvention and bring a new level of strategic thinking and empowered decision-making.

APRA is clearer in 2015 of where they want RSE’s to look. The need to deepen insights and practices across risk culture, governance, and oversight including monitoring all 3rd party and outsourced arrangements is now defined.

There are challenges, but the opportunities and rewards are there to be had. Those that do this will set themselves apart and build stronger foundations to drive growth. For those inclined to inertia, APRA will likely push further prudential guidelines to force your hand.

Seize the opportunity, tackle the big questions and you’ll be pleasantly surprised when the 2016 thematic review comes knocking at your door.

If we can help, or if you’d like to discuss APRA’s insurance themes in more detail or my top 5 tips to achieve industry better practice, drop me a email or give me a call 0478148880 and happy to chat over a coffee

This article was also published in Investor Daily. Click Here to check it out.

Six Months in a Leaky (Life) Boat

Since the advent of ship building somewhere before 3000BC man has known that leaks are bad, so, over literally thousands of years, processes and technologies have been constantly refined to eradicate them. Leaking water is insidious, it silently makes its way into places it is not intended, creating untold damage. Of course not all leaks involve water, from party balloons to political parties (something we here in Australia are all too familiar with) we are all aware of the damage they cause.

Across all types of insurance the most damaging of all leaks comes in the form of claims paid that should not have been. Claims leakage silently erodes balance sheet value, often to the tune of many millions of dollars. Take this example of a sample portfolio.

Total insured value of $200 million, with an average claims payment to premium ratio of 75% means that the total amount paid in claims in a given year is $150 million. In a recent publication titled ‘Stopping the Leaks’ PWC noted poor performance levels of 25% leakage however, based on my years working in senior leadership roles I believe average to be closer to 8-10%, so I’ll be conservative and use the lower number.

Taking our total amount of claims paid from earlier of $150 million and assuming that 10% is ‘leakage’ that highlights a total addressable wastage of $15 million annually. Even a 2% improvement would result in a direct improvement of $3 million to the insurer’s bottom line.

Every insurance executive I know would consider this worth having.

In this article I will address some of the questions I hear being asked, look a little at what we can learn from other markets and propose some actions that every insurer should consider. These topics touch into deep technical areas and warrant consideration in context of the individual portfolio so I’ll keep it a little generic here. I’m happy to grab a coffee and chat if you’d like to hear more.

Make yourself comfortable, here we go…

Where does leakage occur?
It’s an oversimplification to say that leakage is purely the result of unnecessarily paying a claim, although this is a problem in its own right. As with anything it is important to start at beginning, yes that’s correct – claims leakage can stem directly from underwriting, but I’ll come back to that in a separate point. Within the bounds of the claims function the places to look for leakage include; philosophy guidelines, customer service processes, simple human error in processing, non-disclosure from the insured, manual & automated business rules and of course, fraud.

Why is leakage so high?
Coming back to our analogy around leaky boats (and political parties for that matter), it can be difficult to find the source of the leaks and by the time you have the damage is done. Little has been done to quantify the cost of claims leakage, many simply put it down to a cost of doing business a sort of basic law of averages perspective that assumes, over the long term, the business is winning. This couldn’t be more wrong. As dollars are wasted and pressure mounts on the bottom line, cost saving measures are applied. The measures often result in reduced staff numbers and as a consequence reduced governance. The outcome? Higher claims leakage. It’s a vicious cycle.

Organisational separation of underwriting and claims teams can also have a causal effect on leakage however this should be considered as a part of broader operational review so I’ll park that for a future blog. The primary reason that leakage is so high is simple, not enough is being done to identify and address it.

What is the best way to identify leakage?
This will seem kind of obvious – look for it. Not just a quick poke your head around the corner and glance around the room, but a well-structured periodic formal review of the full end-to-end claims lifecycle. The review should incorporate detailed technical processes, product features, policy exclusions and trends that relate to the quality of underwriting. In choosing where to start I advocate looking at the ‘living’ products such as disability, trauma/ critical illness and TPD first. The potential for material payouts and long duration claims is highest here, equally so is the potential saving.

Is there an example of addressing claims leakage working well?
There are many examples in British and European markets of claims leakage delivering significant benefits, with some claims benefits outweighing costs ten-fold. Closer to home we see claims leakage being more closely managed in general & health insurance as well as workers compensation. Some argue that the more transactional nature of these products brings far greater data points, making reviews simpler. Whilst this may be true the methodology remains valid for life insurers.

We do functional audits, isn’t that enough?
In short, no. Functional audits and internal quality assurance fail to deliver the deep reviews required to identify root causes. They are typically limited to a narrow period and a small subset of the portfolio and in turn deliver limited return for the investment.

There is a need for transformation change in the way insurers operate in our region and comprehensive end-to-end reviews are the best way to equip leaders with the information needed to drive that change. Without data there is little impetus and the vicious cycle will continue. Addressing claims leakage should be positioned as a strategic play, after all it is seeking to create a step change improvement to the bottom line.

Do we need to eliminate leakage?
Unlike boats, in claims not all leakage needs to be addressed. This is a prime example of where the law of diminishing returns applies. As an example, expending considerable time and investigative effort on a small TPD claim will likely deliver little to no value. This is why structured and periodic reviews are important. You want to identify the systemic challenges rather than focusing on individual cases. Whereas PWC has noted examples up to 25% a best practice target is close to 1 to 2%. Using our earlier example portfolio that means savings of $4.5 million dollars. So eliminate, no. Dramatically improve, most definitely yes.

Is underwriting leakage a real thing?
Leakage from underwriting is certainly a less considered term however that doesn’t mean that underwriting should be exempt from scrutiny. Far from it. Many would say that the inability to predict renders it improbable at best and more likely impossible, to stem leakage through underwriting however, I don’t share that view. The data that is available from claims allows us to look at trends and many of those trends will tell a clear story about the type of business being underwritten. Claims data is the tea-leaves that we can use to predict the underwriting future.

What questions should senior leaders be asking?
Leaders should always be interrogating the data available to them but here are some questions I think they should be asking right now;

    • Do our underwriting policies and guidelines adequately reflect ‘’price for the risk’’ and are we staying within our risk appetite?
    • Is there a potential that we are taking on risk we have not priced for, and if so, what are the flow on implications on our claims portfolio for doing so?
    • How effective is our operating model and the feedback loops between claims and underwriting?
    • Do we have adequate risk management and legal oversight effective to investigate non-disclosure retrospectively and contractual legal duty of disclosure obligations embedded?
    • Are we seeing too many early duration claims, so we know why?
    • Are we unique or is there inherent inadequacy in our product design or product exclusions?
    • Are we being selected against, are we standing out from the crowd and as a results attracting more substandard applications?

In my next blog I will look at best practice trends from around the globe as well as delving into how to use claims leakage reviews as a tool to attract and retain the best talent. I’ll also explore the role technology can play in improving long term performance.

As always if you just can’t wait for the next instalment drop me a line and we can chat.

Industry pressure on what is an individual problem.

Speaking to people at all levels of the financial advice industry there is a palpable exhaustion. Many are still dealing with, and reeling from, the implications of FoFA and now they feel under attack from the new Life Insurance Framework. Add to this the pressure associated with ASIC’s recent vigorous enforcement and some are considering whether the rewards justify the energy required just to tread water.

As an observer and consultant to the industry, I can’t blame them.

For the past few years the rate of regulatory change and the lack of stability of the target state has been a massive distraction. At a time where one of the major criticisms has been that planners feed on trail commissions and don’t engage with their clients, they’ve been inundated with change, forcing them further from client engagement.

Many are still dealing with the implications of FoFA and now they feel under attack from the new Life Insurance Framework.

Government, community groups and industry associations have all pursued a structured and industry wide response to what, when the emotive language is stripped away, is the bad behaviour of a small minority. Analogies of sledge hammers and walnuts continually come to mind.

Somewhere in the melange of changes, one key point seems to have been lost. The provision of financial advice is ostensibly a one to one activity. The focus for change is, or at least should be, on ensuring that, at the point of advice, the individual planner can positively answer the question; Is the advice I’m about to give in the best interest of the individual I’m providing it to? If they can genuinely answer yes then we have no problem. Regardless of pressures, real or perceived, stemming from vertically integrated business models the question and the point of advice remains the same.

No amount of regulation is going to eradicate the corrupt. Those who seek personal gain at the detriment of others will always find a way. Strong recruitment, training and supervision all help but they can’t define the ethics. Good eggs can still go bad.

We need to pause and refocus on the individuals. Sustaining the current blanket approach risks driving those who are good from the industry in frustration resulting in the perverse outcome of decreasing the overall quality of advice.

Have you paid enough attention to the IMF?

With Greece monopolising the other IMF, I thought it worthwhile raising the fact that, surprisingly, many superannuation funds still appear to be looking at their IMF as something they have to do rather than something they ought to do.

Of course I’m talking about Insurance (risk) Management Frameworks and not the International Monetary Fund but to some extent there are similarities. After all both exist to provide support in times of crisis.

Since the advent of APRA’s SPS250 requirements, I’ve been hearing superannuation executives talk of their approach as being something of a ‘tick-the-box’ exercise. With more than two decades in senior insurance and consulting roles I find this surprising. APRA has been very clear that far more than minimum compliance is expected. Simply documenting an approach to comply and then turning it into shelf-ware simply won’t cut it.

At a minimum the following questions should have clear and well-articulated responses;

  • Is your insurance strategy clearly linked to your business strategy? How well is the correlation understood?
  • What is the charter of your Insurance Committee (if you have one)? How appropriate is the representation? Is it a dynamic group and does it consider legislative change in accordance with the funds strategic objectives?
  • Have the formalised elements of the IMF been delegated to, and embedded within, the operations of the Insurance Committee?
  • Are your claims and underwriting processes sufficient to objectively review and monitor adverse or reputational risk claims and/or underwriting decisions from your insurer?
  • Do your historic records contain sufficient detail to enable claims trend analysis or premium calculation?
  • Are your teams sufficiently trained to address the day to day requirements under your IMF?
  • Does a regular monitoring process exist for the IMF?

It’s not too late (just as it wasn’t for Greece) to turn your focus to the IMF. You should make sure it’s embedded in your business and aligned top to bottom with your governance structures. You have until June 2016 so time is getting short.

If we can help, or if you’d like to chat to be sure you understand the need, just drop me a return email or give me a call on 0478 148 880.

Professionalising Claims and Underwriting – Are we there yet?

Discussion on the need to lift the professional standards across both underwriting and claims has been raging for years. In fact, for the past 5 years ALUCA have done a great job banging the drum on continuing education and accreditation, I applaud them for their dedication.

The reality is that underwriting and claims is complex and insurers need to keep pace. The need continues to evolve and demands continued investment for long-term success. It’s clear that pro-active independent directors and increased regulatory scrutiny are transforming thinking.

Being one of the few who have proudly worn both the “claims and underwriting hats” over a career spanning two decades and two continents in large insurers, and a few years at a big 4 firm working across multiple insurance markets, I’m still surprised to hear the same questions being repeated. If you’re CEO, COO, or you head-up the risk function, I suspect you’d be addressing questions such as:

  • How are underwriting and claims contributing to product design?
  • Will investing in claims technology actually drive the efficiencies, performance and scale we need? And how long will it take to recoup this investment?
  • Have we considered what can we learn from Fintech start-ups in other markets and/or offers in other, more transactional, nimbler insurance markets?
  • Do we have an operating model that sets our people up for success? And are we driving a strong risk excellence culture to reduce preventable claims leakage?

Over the next six weeks I will take on these questions (and likely a bunch more) through a series of short articles. I’ll provide insight across key questions such as whether we can forecast the claims and underwriting workload to utilise our specialist resources more effectively. And, has earlier investment in underwriting and claims automation delivered on the promise?
I’ll also delve into the marriage of risk and culture and a summarise some key insights from other markets.

To whet your appetite, here’s a couple of interesting articles that capture the potential value of leveraging enterprise risk management insurance frameworks and examine the reasons for claims leakage.
Understand the risk appetite
Stopping the leaks

Now, if you’re the kind of person that reads a book from the back page and can’t wait for my next blog, give me a call on 0478 148 880 and I’ll buy you a coffee. You might just find out how the story ends.

The $6b elephant in the room

With claims costing the Australian life insurance industry around $6b annually, it’s surely time that the focus moved from enhancing the front end to fixing the back end. At the FSC Life Insurance conference earlier this year, industry leader Pauline Blight-Johnson referenced research that showed the Australian industry trailing comparable nations in claims performance.

The drivers of claims are indisputably complex and worthy of analysis, however there is one glaringly obvious opportunity for performance improvement: technology.

Having worked closely with many Australian insurers over an extended time, it is apparent that the quality of the technology supporting claims processes is inadequate at best, and at worst negligent. Claims teams in some firms continue to rely on archaic first-generation, paper-based solutions, unable to obtain even basic management information on volumes, durations, diagnoses or even cost. Others operate outmoded second-generation systems so rife with customised code that they are no longer supportable. These systems afford only basic information and only when the assessor finds time to input it. Consistent across the majority is a hotchpotch of high-cost solutions with little integration, limited support and no scalability.

A number of firms are addressing claims technology, but they often lack vision and fall into the trap of buying the newer version of the second-generation solution they have today. Typically these solutions are on-premise installations of vanilla systems that require expensive and risky development just to make them work. This departure from the product providers’ core code base complicates future upgrades and binds the purchaser to prohibitively expensive development costs for the life of the system. To dress them up as newer offerings, some providers offer to host them for you; a ‘private cloud’, they say. In reality, this is decades-old technology repackaged with spin.

Third generation alternatives such as ClaimVantage already exist and are expansively used in other, larger markets. The next generation is already in development.

The maturation of cloud technologies has seen quantum leaps in potential and massive reductions in establishment costs. In its 2013 Technology Vision, Accenture highlights that globally, firms have moved beyond the unfounded concerns with cloud solutions and are now looking to realise the benefits. Sadly, Australian firms are lagging well behind. A misconception that our regulators are ‘anti-cloud’ causes many to hesitate. However, I recently discussed this topic directly with APRA and was clearly advised that no such objection exists. The regulator is solution-agnostic. For all solutions – internal, hosted, onshore or off – APRA simply wants assurance that board members and executives have given due consideration to risk and their obligations under Australian law.

The potential for a new system without prohibitive upfront cost, that scales as your needs change, that defers costs in line with benefit, that seamlessly spans geographic borders and that is continually upgraded with the lessons of a global client cohort is today’s reality. The challenge for Australian insurers is simply to adopt it.

Sequential represents ClaimVantage in the Australian and New Zealand markets, so if you’d like to understand how to break free of the traditional technological shackles, call us.

Life insurers in a war with no winners

Australian life insurers are at war. Not against some foreign invader or a perpetrator of crime, but a war that’s internal to the industry. Thankfully for all involved, the battlefields are quieter and the bloodshed absent. But as with many wars, there will be no victor, only attrition.

This is a war over talent; more specifically, over talented claim assessors. The catalyst is burgeoning claim costs, now reported as being in the order of $6b. At last week’s FSC Life Insurance conference, APRA member Ian Laughlin restated the concern that, without change, the industry would be unlikely to hold sufficient talent to meet its assessment obligations in the coming years.

The mix of life business being written is now skewed heavily to temporary disability, the corollary being increased claim volumes. Given the highly skilled nature of claims assessment, and the extended ramp-up period required for assessors to become productive, the increased claim rate will almost certainly exceed the rate at which the industry can produce sufficient assessors.

As has been evident in underwriting in recent years, gaining efficiency through technology is the key to claims scalability. Systems that interface with de-facto industry standards such as MD Guidelines and WHO ICD diagnosis codes enable highly configurable, automated adjudication of simpler claims where human assessment adds little value. By removing this ‘noise’ from the process, assessors are freed up to focus on those claims where their expertise pays dividends of shorter claim durations and reduced fraud. Solutions that provide this capability, such as ClaimVantage, are already available and used extensively in other markets.

The war over talent is unwinnable. Australian life insurers would do better to compete in the realm of technology to meet the growing claims management need.