The Trowbridge reforms and the subsequent agreement amongst the insurers, financial advice bodies and the Government mark a watershed moment for the Australian life insurance industry.
The significant reduction in up-front commissions, introduction of claw backs and various measures aimed at improving adviser professional standards are a step in the right direction to address the conflicts of interest inherent in the industry today.
As insurers begin to grapple with the implications of reforms and initiate processes to meet the minimum requirements, they have the perfect opportunity to critically examine the existing business model and improve outcomes for customers and advisers. This article is deliberately focused on how insurers can help advisers, acknowledging that there is a significant opportunity for insurers to reorient their business models to being more customer-centric.
It is widely acknowledged that financial advisers will bear the brunt of the reforms, with some estimates suggesting a decline in revenues of the advice industry by greater than 30%. With their business model being challenged, particularly for the smaller / lower scale financial advisers, insurers have the opportunity to support them in ways that go beyond simply providing direct financial support, which itself will become more difficult under the new regime. We have captured below some opportunities for insurers to consider.
1. Understand the adviser hassles in current process
Insurers need to stop relying on hunches or their own interpretation of the issues for advisers and start to understand the end-to-end sales and service process for advisers and the advisers’ own perspectives on the hassles. The first step in the above is to conduct a detailed hassle mapping exercise to break-down the sales process in as much detail as possible. This should be done through interviews and discussions with the advisers, dealer groups, Business Development Managers (BDMs) and other individuals involved in the sales process. This exercise can help identify a rich set of processes and functions that are valuable to advisers as well as those that are not as valuable and help identify opportunities for the insurers to assist advisers. Examples of support may range from assisting in lead generation, streamlining the sales process, seamless connection through to the underwriters as well as better communication through the underwriting and decision process.
2. Granular cost analysis that identifies opportunities to reduce ‘cost-to-serve’
The hassle mapping exercise should be supplemented with a granular understanding of the cost drivers across the sales process. Here, it is critical to not just rely on where the advisers think they spend their time but to supplement that with time-and-motion studies as well as discussions with BDMs and other individuals from the insurer involved in the sales process to get a comprehensive understanding of the costs. Various cuts of the costs should be analysed:
- Key activities across the sales process: Lead generation, initial fact-find, product selection process, Statement of Advice creation, implementation/hand-off to insurer, on-going servicing.
- Category of costs: In aggregate as well as for each step of the sales process, analyse sources of costs across major categories: Adviser time, Support-staff time, Administration, Training & CPD, Rent, other.
The above analysis should provide a rich data-set of costs and facilitate discussions on strategic levers the insurer has available to reduce the costs. These levers would include but not be limited to the following:
- Automation: To what extent can the processes be automated? And what role does digital have to play?
- Standardisation: Which processes can be standardised and what is the expected benefit?
- Centralisation: Which processes can be centralised and what is the expected benefit?
- Outsourcing: Which processes are better done by specialist vendors both from a cost and quality perspective?
- Offshoring: Are there any opportunities to outsource specific processes?
3. Consider industry-led funding models
Whilst it will be difficult for any individual insurer to provide direct funding support to advisers, there is an opportunity for the industry to set-up a pool that provides short-term financial support for intermediaries that are expected to struggle under the new regime. To avoid potential conflicts of interest, the insurance industry could outsource the management of the pool of funds to an independent body and ensure there is appropriate governance over the release of funds. Furthermore, there may also be opportunities to partner with Fintech type providers that use advanced analytics to adjust the cost of loans based on the adviser’s risk profile. Developing such an industry-led solution would not only help sustain the smaller, independent financial advisers over the short-term but also ensure that the industry remains competitive and continues to attract new talent over the longer-term.
4. Ongoing focus on education and professional development
In addition to meeting the minimum requirements under industry led initiatives, insurers should work with the advisers to shift the historical mind-set of treating these requirements as one-off compliance activities to embedding them into the culture of the organisation. This is not an easy task and requires top-down communication from the insurers on the importance of these activities, listening to the advisers’ challenges and providing support to the advisers in short-term and ongoing capability up-lift.
The four items mentioned above only capture a sub-set of ways in which insurers can help financial advisers navigate the upcoming changes. The industry is more progressed along some initiatives over others but there is recognition that a lot more needs to be done.
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