Consumers the forgotten party in life insurance amalgamations

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As the number of life insurance brands operating in Australia becomes more concentrated, leading mutual life insurer PPS Mutual says improving consumer trust and reputation is the biggest challenge facing the $51 billion* life risk insurance sector.

Most Australians would not recommend Australian life insurers to a friend according to recent Net Promoter Score (NPS)** data which indicates how likely consumers would be to recommend an insurance company to friends, family or colleagues.

Michael Pillemer, chief executive of PPS Mutual, says the poor showing of Australia’s risk sector is due to a complex series of historical issues, that can be traced to the first round of industry demutualisations in the 1990s.

Since then, life insurance scandals have plagued the industry’s reputation, with public acknowledgement that life insurers face a ‘trust deficit’ with consumers, highlighted by the perception that the nation’s largest life insurers have unfairly rejected claims.

“The fact is, most Australians would not recommend life insurance companies and their policies to a friend given the perceived self-interest of these organisations,” Pillemer said.

“The core problem is that most insurers are listed companies which place shareholder interests above the needs of their insured customers. Thus, there is a significant misalignment between shareholders’ and policyholders’ interests and because of this, many insurers aren’t well trusted and aren’t seen as making appropriate decisions,” he said.

Benchmarking reputation

PPS Mutual says a system of allocating a Net Promoter Score (NPS) – an objective measure of an insurer’s reputation – is emerging as a global benchmark that could help insurance companies to measure and redress the recovery of trust and reputation.

A NPS score is derived from asking consumers how likely they would be to recommend a company on a 0-to-10-point scale, where 0 indicates a recommendation would be very unlikely and a 10 denotes a very high likelihood.

“This is then converted to a percentage. So, for example, if we surveyed 200 people and got 120 promoters (60%), 40 neutral (20%), and 40 detractors (20%), then the NPS would be 40%.

“Most Australian insurers have a negative NPS score. This reflects the tarnished reputation of the industry and also that insurance is a grudge purchase.

“In contrast, PPS Mutual’s South African partner has a relatively high NPS, indicating a high level of trust in the company relative to other insurers, which also demonstrates the benefits of mutuality where the company exists solely for its members’ benefit,” he said.

“As we’re a mutual insurer, we give back to our Members, who are our owners, through profit sharing. This takes the grudge out of the purchase of insurance by consumers.  Profits in the insurance bought by our Members are distributed back in the form of profit distributions,” Pillemer said.

“Each year, PPS Mutual Members are assigned a share of the annual profit generated by the insurer. After 10 years’ Membership, Members can start to withdraw this money from their Profit-Share Account. PPS in South Africa has in the past 10 years allocated $2.2 billion in profit share to Members.

“This is a very successful insurance model and leads to a very high retention of our Members as they trust that we are looking after their interests,” he said.

PPS Mutual is Australia’s only mutual offering retail life risk insurance policies to select professionals, including doctors, lawyers, engineers and accountants. These groups have more consistent income streams and relatively conservative risk profiles. PPS Mutual has developed products relevant to the professional market such as Income Protection, Life, Total and Permanent Disability, and Trauma insurances, which are quickly gaining acceptance across Australia.

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*Based on net premiums written by life insurers for year ended December 31, 2016, APRA December 2016 Quarterly Life Insurance Performance Statistics.
**Roy Morgan Single Source. Australians 14+ with risk and life insurance. 12 months to December 2016

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