Planners are focusing more on life insurance and expect this to continue over the short term

Recep Peker

The proportion of planners advising on risk has remained steady at 90% over the last 12 months, and those who do are sourcing a greater proportion of their practice revenue from providing risk advice (29%, up from 27% in 2013). Looking forward, planners expect this trend to continue with risk advice accounting for 31% of their practice revenue by 2017.

“Risk continues to be a key component of many planners’ businesses,” said Investment Trends Senior Analyst Recep Peker.  “Providers can help facilitate planners’ intention to grow their risk business by addressing some of planners’ key challenges, chiefly high premiums, administration issues and inefficient processes.”

Planners are expanding the range of insurers they use, but switching remains high

After four years of planners consolidating the number of insurers they use, planners have started to expand the number of insurers they use. The typical planner now uses 3.7 insurers each, up from 3.4 in 2013.

However, levels of insurer switching remains high with 40% of planners saying they stopped using at least one insurer in the last 12 months, up from 35% last year.

“Insurer relationships are in a state of flux,” said Peker. “Planners are aggressively expanding the number of insurers they use, while cutting those who aren’t exceptional. There are great opportunities and risks for insurers to either benefit or lose out from this switching.”

Despite insurer relationships changing rapidly over the last 12 months, it is still crucial to be a planner’s most-used insurance provider. Planners currently write 59% of premiums through their most-used insurance provider.

BT Life, OnePath and AIA Australia posted strong gains in terms of primary market share. The top five insurance providers by number of primary planner relationships are now:

1. OnePath
2. AMP
3. AIA Australia
4. BT Life
5. TAL

“Whilst planners are using a wider range of insurers, the market is also becoming more concentrated,” said Peker. “The top five insurance providers now account for 66% of primary planner relationships, up from 62% last year.”

Zurich and AIA Australia has the highest satisfaction amongst its users

“Satisfaction is crucial in the insurance space, as business is not very sticky and planners can easily stop writing new business with an insurance provider,” said Peker. “That’s why there is a very strong relationship between satisfaction and switching behaviour.”

Planners’ overall satisfaction with their most-used insurance provider remained steady at a high level. The top three insurance providers by overall planner satisfaction in 2014 are:

1. Zurich
2. AIA Australia
3. Asteron Life

Underwriting is a key area in which insurers can differentiate their offerings

Following the tightening of underwriting standards over the last year, we’re seeing the average number of days planners say it takes providers to process underwriting submissions increase from last year’s levels. This has resulted in planners’ satisfaction with underwriting falling slightly at an industry level over the last 12 months.

“The underwriting process is the strongest driver of overall satisfaction with insurers,” said Peker. “So, any falls in satisfaction with the underwriting process is noteworthy.”

“Underwriting is very important for both acquisition and retention, and will be a key battleground for insurance providers over the next year,” said Peker.

45% of planners said insurance providers should focus on improving underwriting speeds to help them with their advice on risk.

Users of XPLAN’s risk modules have the highest levels of overall satisfaction

89% of planners who advise on risk use risk software. XPLAN continues to dominate the risk software space with over half (53%) of planners using XPLAN’s risk modules as their most-used risk software. This is followed by Rubik/COIN (18%) and Midwinter (8%).

At an industry level, planners’ satisfaction with their most-used risk software remained steady at the eleven-year average.

Among risk software providers, XPLAN achieved the highest average overall satisfaction rating from its users and ranked highest across all nine of the other service elements measured.

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  Life insurance focus eased but still important.

  Adviser focus on life insurance has fallen back from its peak in 2012, but remains a key area.

• Insurance business is even more concentrated, and AMP now tops primary relationships.
• Good BDM support is key for retention and acquisition.

Adviser focus on life insurance has fallen back from its peak in 2012, but remains a key area of their businesses

Following the recovery in investor sentiment and increasing flows to growth assets, adviser focus on life insurance has come back slightly from its peak in 2012, according to a new report released last week from leading wealth researcher Investment Trends.

The July 2013 Investment Trends Planner Risk Report is an in-depth study of Australian financial planners and their usage of insurance. The study is based on a survey of 1,159 financial planners concluded in July 2013.

The amount of client time spent on talking about insurance needs by planners fell slightly to 18%, after reaching the highest level recorded in the seven years of this study last year (20% of client time).

“The volatility in the markets that lasted most of 2011 and 2012 had driven planners to focus on increasing the role of insurance advice within their businesses, but the return in confidence earlier this year has meant planners were able to write a lot more non-risk business this year,” said Investment Trends Senior Analyst Recep Peker. “An outcome of this is that they are again spending the normal amount of time talking to clients about their insurance needs.”

“Despite this, those who write risk estimate they have written 5% more in annualised risk premiums in the last year than we recorded in the previous study, and remain optimistic predicting future growth (as they have for several years).”

The Future of Financial Advice (FoFA) reforms may also be a catalyst for planners to write more risk business, with 23% of planners saying they plan to provide more life insurance advice as a result of FoFA.

Insurance business has become even more concentrated, and AMP tops primary relationships

Insurer relationships are changing rapidly, with 29% of planners saying they reduced usage of an insurer in the last 12 months and 35% saying they stopped using an insurer (8% did both).

Those who have been leaving their insurer don’t necessarily start using another insurance provider, which is evidenced in the average number of insurers used by planners declining from 3.8 each to 3.4 each.

“This has resulted in the greater concentration of risk businesses written,” said Peker. “Planners write 64% of premiums through their most-used insurance provider, up from 61% in 2012 and 54% just five years ago.”

“It has become even more crucial to be a planner’s most-used insurance provider.”

AMP and AIA posted strong gains in primary market shares. The top five insurance providers by number of primary planner relationships are now:

1. AMP
2. OnePath/ANZ
3. AIA Australia
4. TAL
5. BT Life

Platforms are becoming more important in the insurance market

The proportion of these risk premiums written on platforms is on the up, with planners writing 39% of new risk business via a master trust or wrap platform. This is up from 34% of premiums just last year, and up from almost zero ten years ago.

“The reason this is so significant is because the concentration of risk business is even greater among advisers using platforms, partly due to the limited range of insurers available on most platforms,” said Peker. “This means insurers without a platform will need a more compelling proposition to compete.”

Having multiple insurance providers available on platforms could help drive more insurance business to platforms.

“The main factor inhibiting more risk businesses on platforms is the limited range of insurers on offer, and indeed planners continue to ask for choice of insurer on platforms, most often because they believe this allows them to provide the best deal for the client.”

Good BDM support is key to retention and acquisition

“Satisfaction is crucial in the insurance space, as business is not very sticky and planners can easily stop writing new business on an insurance provider,” said Peker. “That’s why there is a very strong relationship between satisfaction and switching behaviour.”

“Relative to their market share, insurers with lower overall satisfaction ratings from their users experience a higher proportion of planners leaving or switching to other insurers.”

Planners’ satisfaction with their insurers remained high, but fell slightly from the levels achieved in 2012. The top three insurance providers by overall planner satisfaction in 2013 were:

1. TAL
2. Zurich
3. Macquarie Life

Satisfaction with insurers increased the most with business development support, but part of this increase is driven by switching to insurers with better support.

“Good BDM support is a hygiene factor, crucial for both retention and acquisition,” said Peker. “Poor support is a key factor that has caused planners to stop using an insurance provider, and good BDM support is the top selection driver for becoming a planner’s most-used insurer.”

“Although providers now score well for business development support at an industry level, they cannot let service levels falter.”

“Beyond this, planners are demanding further enhancements to underwriting and technology, and these areas will continue to be key battlegrounds for insurance providers over the next year,” said Peker.

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