Dr Seuss on Life Insurance
Ilan Leas has a whimsical outlook, on how the future of Life Insurance connects to a Dr Seuss Book.
Of all the novels by Dr Seuss, my daughter’s favourite is the story about a Cat that gets offered some green eggs and ham repeatedly but continues to refuse to eat them. Perhaps this was because the Cat didn’t like to try new things or was afraid of change but eventually through the sheer persistence of Sam I Am, the Cat took a bite and as in any children’s book ending, it emerged that he loved them. The Life Insurance Industry has been on a bit of a green eggs journey these last few years, but are we expecting a happy ending?
We’ve been operating through a period of volatile profit results. Whilst insurers have struggled, the reinsurers were hardest hit (in the period from 2008-2014 for example, reinsurer profit as a % of net premium was 0.1% before allowing for retrocession losses). With significant price rises in Group Risk (that are recently starting to adjust back downwards) and some increases on individual disability income rates, profitability seems to be normalising again.
“You’re in pretty good shape for the shape you are in”¹
In the Group space, capacity is returning far quicker than expected. Insurers have increased participation in tenders in 2016, sometimes without reinsurance support. From the reinsurance side, as a crude analysis of the top 20 Funds in the Group Risk space, the average number of local reinsurer participants (call this a ‘Capacity Index’) has gone from 1.4 in 2013/2014 to 1.7 in 2015/2016. We are also seeing capacity coming in further through offshore reinsurers (with some challenges around the ability to conduct business locally) and local insurers have at times even participated as reinsurers. On average, this adds another 2 participants to the 2015/2016 index value.
Price competition has also been strong in late 2015/2016 but there still remains the key question of what really changed? Much like the Cat just changing his mind, if we aren’t really getting better data than before and products haven’t really shifted in design, I wonder to what extent emotion (fear of loss of market share) is driving not only participation but also a reversion to some of the behaviours that caused the problems in the first place? Traditionally we have a bit more time to learn from a period of past losses but one hopes that this cycle of ‘haven’t we been there before’ isn’t about to return within the space of 2-3 years.
Some big positives though are the engagement by trustees in the Group Insurance space (pleasingly, funds are increasing their use of actuaries in particular to support their business).
“Unless someone like you cares a whole awful lot, nothing is going to get better. It’s not.”²
On the individual side, there have been some significant industry challenges that all seem to have come at a similar time. There has been some negative press on claims practices and quality of advice which (aside from how the various offices are addressing) raises some interesting questions on how actuaries can and should get more involved on these fronts. The FSC is developing the Life Code of Conduct and some regulatory changes are on the way such as the Life Insurance Framework and IFRS to name a few. Some of these are expected to lead to a change to the playing field. As with any disruption, there will be winners and losers so this could be one of the more interesting times for actuaries to play a key (and creative) role in implementation of better outcomes for policyholders. Insurers are looking at alternative reinsurance models and there is a strong shift towards better servicing (be it at acquisition or at the claims end) that is driving a number of insurers’ strategies. Again this is an opportunity for actuaries to get more involved with the broader business.
“I know it is wet and the sun is not sunny, but we can have lots of good fun that is funny.”³
It is with a lot of excitement that I will be picking up from Bozenna Hinton the role of Convener of the Life and Wealth Practice Committee. Bozenna has done an incredible job of contributing to the LIWMPC for the past 3 years and the wider profession, and she now looks towards getting more involved on the international actuarial side. On behalf of the team, we would like to thank her for all her huge efforts and time and wish her the best of luck in the future.
From the com
mittee’s side, we have a lot to do. In the short term work is continuing on professional standards, supporting the education review and CPD changes, as well as discussions with industry bodies such as APRA and other cross practice committees. In particular, Tony, Ash and David will be sharing more detail at the upcoming Financial Services Forum so please do join if you are attending the conference.
Lastly, I would love to bring a bit more fun back into the debate and elevate the role of, and the noise that actuaries can make, more broadly. Anyone wanting to be involved – please get in touch with the committee.
1 From Dr Seuss’s, ‘You’re only old once!
2 From Dr Seuss’s, ‘The Once-Ler’
3 From Dr Seuss’s, ‘The Cat in the Hat’
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