The industry, versus companies in the industry

The New Zealand Herald coverage of RBNZ research and recent media releases reminds me of one of my favourite jokes about economists:

Three economists are taking a day off at the archery range. Being largely desk-based folks they aren't very good, but they're having fun. One draws their longbow shakily, aims, shoots, and misses the target by a metre to the left. The next draws their bow with effort, aims to the right, shoots, and misses the target by a metre to the right...
...the third economist then shouts "bulls-eye". 

So when a report worries about both high levels of profitability (applicable to some companies) and lower solvency margin (applicable to different companies) and the media reports about both talking about 'the industry' it is this use of an 'average' that is confusing for readers. How can the sector make too much money and run down solvency capital? It doesn't. Some companies have low margin businesses and tend to have falling margins of capital above minimums and others have big margins and have stable or rising levels of capital. The story is different for each company.  

The question of insurer efficiency, and in aggregate insurance industry efficiency, is an important one. It is complicated too. Unpacking it is hard and unlikely to be done in consumer-focused articles. Take just one issue: underwriting information. Major gains in insurer efficiency could be made is access to medical information, much like banking information, could be made more available at the discretion of each customer. If permission were granted to access ministry of health databases the results could make underwriting so much easier, and therefore quicker, and cheaper. It could be convenient, fast, and accurate. Usually we only get one, or sometimes two, of those three. But when the question of enhanced access to medical information is raised, even if that were controlled by the customer, the reaction from media is usually negative. So we are stuck with memory-test questionnaires that place disclosure burdens most heavily on the customer. 

Partners Life: Underwriting Management System

Partners Life's new underwriting platform was launched earlier this week. Originally announced as being called PLUME the name has been finalised as MUM (My Underwriting Manager). Today I attended a presentation on the new system and here are some of the key points:

  • It has reduced questions by about 50% from the original paper app form
  • MUM adjusts the questions based on the benefits quoted, so there are no income and work-related questions for someone applying only for Life Cover for example.
  • You can also apply for business covers through MUM, at this stage Business Life, Trauma and TPD can be automatically underwritten but some other business products such as Key Person cover and Loss of Revenue will still be referred to an Underwriter
  • After an online app has been done you can go back to the quote and change sum insured etc if the client changes their mind and MUM will automatically adjust itself accordingly
  • The confirmation of terms of a policy will be instantaneous in most cases
  • Payment methods can be added to avoid delay in issuing the policy and are verified in real-time
  • You have 90 days to complete an app, you can start and go back and continue it at anytime within the 90 days
  • MUM can be used to apply for alterations to existing policies but will it still need to be approved by an Underwriter
  • Customers can sign online to allow the insurer to gain access to medical records through Konnect
  • A customer signature is only required if requesting information from a Doctor, otherwise Partners Life just require the client to tick a box as a declaration

Utilising Konnect.NET’s free adviser tools

Konnect NET encourage the use of Track and Trace and Doctor Look-Up, free adviser tools on Konnect NET’s website work to support the experience that advisers provide to clients. 

Track and Trace is designed to allow advisers to keep track of clients' SureMed request status. While Doctor Look-Up is designed to provide a better understanding of a GP’s requirements. This could include specific consent requirements and determining if a client needs to book an appointment for an insurance request.

By identifying GP requirements and having some SureMed pipeline transparency means advisers can reduce delays and manage customers' expectations better. 

Currently, there are six major insurers on board: AIA, AMP, Asteron Life, Fidelity Life, OnePath and Partners Life.


Annotation 2019

The value of the price signal, versus the challenge of affordability

Arguably the most interesting question and answer at the FSC's breakfast event 'Risking Everything' was the last one. A member of the audience (who works at a bank, incidentally) highlighted the problem of affordability. Tim Grafton from the insurance council highlighted the value of the price signal. Both raised important issues. It felt like questioner and responder talked past each other a bit, yet progress in our insurance market relies on some degree of acceptance and change on both sides of this divide. A price signal isn't a price signal unless it changes behaviour. That means, by definition, some people have to find insurance cover un-affordable in order to change their behaviour: like not buying our building property in areas increasingly likely to be flooded, and choosing a smaller, better built property in an earthquake zone. But there are parts of the picture missing in this. Insurers must accept the need to be more efficient. Government can help too - zoning and planning permission has to do some work too, not just leave it all to the insurance industry to bring the bad news. 

We have a similar, but largely uncovered example in the life and health insurance sector. Rates must reflect risks otherwise there is no price signal. The essence of programmes like AIA's vitality is that changes in diet and exercise create changes in health that pay dividends to both insurer and client - and result in lower premiums. That fact means acceptance that some people who are more likely to claim, and therefore more expensive to insure, must get charged more. If this seems obvious to my insurance readership, it is worth pausing to wonder: why isn't it obvious to some clients, politicians, and media? Perhaps we need to take a leaf out of Tim Grafton's book and talk about the price signal, and then extend the argument to acknowledge our need to become more efficient, and describe the future. Where we are going, I hope, is a world where more people take better care of themselves and health services and insurers helps them to do so. There is plenty of room for improvement. 

Insurtech set to disrupt the Chinese insurance market

The Chinese insurance market is on path to becoming heavily automated. This exponential change to the market is thanks to the launch of a new insurance scheme being utilized by one of Jack Ma’s many business ventures.

With the changing socio-eco levels and the increased awareness of health care, China is set to become the world’s largest insurance market in a little over ten years.

Seven months after its launch, a new insurer, Xiang Hu Bao now provides services about 65 million clients. Clients can pay very small amounts in premiums which are pooled to help those suffering from various types of illnesses. At the current date, 49 critically ill clients have been compensated. 

The method of operation is as innovative as it is heavily dependent on technology, opposed to traditional insurance methods that are dependent on employees to communicate with clients at all stages of the insurance process. With the vast number of China’s population being equipped with smart phones means that over 700 million people can potentially sign up for the service, make their monthly payment, and submit relevant medical documents using their smart phone. Xiang Hu Bao takes a percentage of pay outs. Insurtechs are expected to generate up to $174 billion in premiums by 2020. The ease of use of Xiang Hu Bao makes it an attractive alternative to traditional insurance companies. To advisers as well as clients. The disruptive nature of Xiang Hu Bao could be an indication of the direction the global insurance market is taking. Click here to read more

Australia: FSC releases policy on genetic testing and the situation in New Zealand

The Australian FSC has plans to implement a binding standard that ensures all life insurer members do not require clients to disclose the results of their genetic test. The introduction of this standard means that clients can potentially receive up to A$500,000 of life cover without the need of disclosing test results. Furthermore, clients will not be required to have genetic tests carried out when initially applying for insurance.

This new standard applies to clients applying for a total sum insured that is less than A$500,000, those who choose to apply for more than A$500,000 for life or total and permanent disability cover, A$200,000 for trauma cover or A$4000 a month of income protection cover will need to provide genetic test results.

Richard Klipin, chief executive of FSC New Zealand, has stated that the FSC is dedicated to specific issues within the insurance industry. Unaware of the future magnitude of genetic testing in the New Zealand market, Klipin has stated that the FSC will discuss the effects.

Although no widespread screening services use genetic tests in New Zealand at present, it is a feature in Australia. That has pushed the need for the Australian insurance sector to develop a policy. It seems obvious that as the value of these screening services becomes more widely recognised, they will be introduced here too. Within a few years that means underwriters will routinely receive applications from people that have had genetic tests. Under current underwriting practices they will need to be disclosed and the results will be used in assessments. 


Partners Life Fastapp update

Partners Life launched Fastapp in March 2017. It was meant as an option for those who did not have the time to complete the underwriting process. Partners Life announced:

"During the two years, Fastapp has been in the market; certain things have arisen. Firstly, that the Predictable Claims exclusion wording has worked to match the underwriting process. While the ‘Uninsurable Health’ exclusion is a more complicated process... Through the use of Fastapp, some clients have had their claims declined as a result of having severe pre-existing conditions or having a "combination risk’ above the acceptable level. As a result of this, clients who fell into these categories ended up paying for cover they should not have had, and would never have had a claim paid under."

As a result of these factors, Partners Life has decided to discontinue Fastapp for new policies effective from 13 May 2019. Policies that were issued via the Fastapp process will continue to receive product enhancements as long as those policies remain in-force. Partners Life has vowed to support clients with these policies as well as advisers who have Fastapp business on their books.