Beyond the Black Stump Life insurance industry outside Australia

1
Beyond the Black Stump Life insurance industry
outside Australia
Speaker Jeffrey Scott Company CommInsure Date
Friday, 24 November 2006
2
Who are CommInsure?

• Longevity - 130 years old!
• 680 Million In-force Business
• Australias Largest Life Insurer
• Largest Excess Reserves

3
Disclaimer

• This information was prepared by The Colonial
  Mutual Life
• Assurance Society Limited ABN 12 004 021 809
  (CMLA) for the
• use of advisers only and is not to be issued or
  made available to
• members of the public. The information and
  examples are of a
• general nature only and should not be regarded as
  specific
• product, taxation, superannuation, retirement or
  social security
• advice. It is based on the continuation of
  present policy
• documents, taxation, social security,
  superannuation information. It
• is based on the continuation of present
  information and their
• interpretation. CommInsure is a registered
  business name of CMLA.

4
Agenda

• Life Insurance Companies
• Life Insurance Products
• Administration
• Underwriting
• Underinsurance
• Distribution

5
Insurance Companies
6
Life Insurance Premiums

• 2005 - US1,974,000,000,000
• growth 3.9
• 2004 US1,899,000,000,000
• growth 2.9
• Moderate premium growth
• Attractive profitability
• Demand strong
• Legal and tax changes hampered growth

Source SwissRe Sigma No. 5/2006
7
Life Insurance Premiums

• Japan - 2,956 per person
• G7 - 2,119 per person
• EU (15 countries) - 1,793 per person
• USA - 1,686 per person
• Western Europe 1,533 per person
• Australia - 885 per person

Source SwissRe Sigma No. 5/2006 (all figures
in US dollars)
8
Companies with Global Market Share gt 1 in 2004
9
Worldwide Market Share of 40 Largest Life
Insurance Groups
10
Top 3 Things Advisers Want From Insurance
Companies

• Adviser education and training
• Access to product specialists
• Qualitative data about clients

Source Merrill Lynch Company Inc VIP Forum
2005 Member Survey Insurance Advisory Board
11
Life Insurance Products
12
What Clients Want from Insurance Products

• Context Provide certainty around urgent,
  specific need or objective
• Affordability Products that fit a limited
  budget
• Simplicity Products that are easy to understand
  design
• Speed Rapid sale fulfilment

13
Meeting the Need Mortgage Insurance

• 60 of Canadian Mortgages are covered by life
  insurance (223 billion)
• 6.7 conversion rate for Agent-sold Term Life
  (USA)

Source Statistics Canada LIMRA Insurance
Advisory Board research
14
New Business Level Premium Policies - Not for
Life in USA
Source Donald Britton, President ING, Business
Group USA 2005
15
Income Protection Maximum Benefits
Source Simon Hudson, Munich Re, Germany, 2005
16
Income Protection South Africa

• Own occupation used for all occupation classes
• Rehabilitation benefits now available on income
  protection policies
• Disability definition use of medical criteria
  not occupational criteria
• teachers larger class size less discipline
• nurses physical psychological demands
• insurance agents commission based knowledge
  of insurance products

Source GenRe Risk Insights Vol. 8 No. 4 2004
17
Benefits

• Graded Death Benefit
• - The longer you live the more you get
• Added Features
• - Concierge Services
• Domestic International
• Medical, travel, hotel
• Exclusions
• - Terrorism
• - Pandemic Illnesses

18
Benefits

• History of Pandemic Illnesses
• Spanish flu (1918-1919)
• 40 million deaths
• 2.5 death rate
• Ages 25-35 most effected
• Asian flu (1957)
• 1 million deaths
• 0.4 death rate
• Hong Kong flu (1968 1969)
• 1 million deaths
• 0.2 death rate

19
Benefits

• Pandemic Illnesses H5N1
• 225 confirmed human cases
• 126 deaths (fatality rate of 56)
• Mild pandemic
• 1.4 million deaths
• US330 billion
• Severe pandemic
• 142 billion deaths
• US4.4 trillion

20
Administration
21
4 Problems Facing Insurance Companies

• Evaporation of Pricing Power
• - From underwriting to earnings
• - Increased price competition
• Inability to Differentiate Product
• - Increasing homogeneity of products

22
4 Problems Facing Insurance Companies

• 3. Phantom Volume Growth (24.8 churn)
• - Increasing availability of substitutes
• 4. Rising Acquisition Costs
• - Increasingly perfect market information

23
Sources of Dissatisfaction Among Advisers USA
2002

• Insufficient back-office support (20)
• Limited product offerings (13)
• Not enough knowledge/resources (13)
• Bad service (13)
• Compliance (10)
• Processing time (10)
• Low commission (7)
• Transaction costs (7)
• Other (7)

24
New Business Processing Times World Best
Practice
25
Non-completed Sales

• 20 of total applications
• - 45 Incomplete information
• - 38 Customer changing their mind
• - 17 Other
• For every 5 days in turn-around time,
  completion rate reduces by 5
• Source LOMA, 2001

26
Underwriting
27
Underwriting Issues

• Mortality is improving
• - Improved medical treatment
• - Reduction in heart disease
• - Declining tobacco use
• Obesity is eroding the improvements

Source Swiss Re Too big to ignore Impact of
obesity on mortality trends
28
Underwriting Issues - Obesity

• How obesity is measured
• WHO weight classifications by Body Mass Index
  (BMI)

Source World Health Organisation
29
Underwriting Issues - Obesity

• The prevalence of obesity
  (around 10-20 for males
  and 10-25 for females)
• Obesity in the US, UK, Australia and New Zealand
  has increased two to threefold in the last 20yrs
• 1980 to 2000 number of obese Australian aged
  25-64 increased from 9-17
• 1980 to 2000 number of obese Australian women
  aged 25-64 more than doubled from 8-20

30
Underwriting Issues - Obesity
Prevalence of Obesity, 1990s
Source International Obesity Taskforce
31
Underwriting Issues - Obesity
Relative Risk of Death (from all causes) by BMI
Source New England Journal of Medicine
32
Underwriting Issues - Obesity

• Obese or overweight Australians
• - 62 of men 45 of women
• Weight reduction surgery in Australia
• - 1993/94 350
• - 2003/04 3,500
• In the US about 115,000 stomach stapling
  operations are performed every year
• Toilet seats
• - Currently designed to support 45kg
• - Will be increased to support 150kg

33
Underwriting Issues Factors Affecting Risk

• Currently used in Australia
• Smoking
• Occupation
• Pursuits
• Family History
• Height/weight (BMI)
• Alcohol
• Drugs

• Not currently used inAustralia but used
  elsewhere in the world
• Criminal record
• Driving record
• Marital status
• Residence
• Overseas travel

34
Underwriting Innovations

• Orasure - Saliva Testing Device
• Currently used in the USA
• Detects Nicotine, Steroids, HIV, Liver
  Function, Glucose, Cholesterol, Creatinine, Uric
  Acid, PSA,
• Hepatitis B C, and Drug Use
• Time 2 minutes Short Form App (12 Questions)

35
Underinsurance
36
Insurance Coverage in Australia
Source CommInsure Life Insurance Survey, 2004
37
Life Protection Underinsurance Gap in the UK

• Only 1.60/wk paid for life insurance (avg per
  person)
• Death protection gap 2 trillion
• Missed premiums 22 billion
• Less than 1 in 10 are adequately protected

Source Swiss Re, UK National Statistics (2003)
38
Distribution
39
Differentiation Between Life Insurance Advisers
40
Life Insurance Sales by Channel USA 1999 to 2002
41
Share of Life Insurance Premiums Sold Through
Banks
42
Bancassurance Model

• Takes 10-15 yrs for significant gains to be
  realised
• Europe - IFAs draw business away from banks
• Wide variety of products
• Reliability
• Trustworthiness
• USA Investment sold primarily through IFAs
  not banks

43
UK Distribution

• Control
• Simple Product
• Low Cost
• Scale Efficiencies
• High Tech
• Strong Customer Relationship

Source A busted flush? Is the current model for
distribution broke? Deloitte UK
44
UK Distribution
Source A busted flush? Is the current model for
distribution broke? Deloitte UK
45
New Distribution Methods

• Pet Stores Pet insurance
• Super Market Temporary Life Insurance,
  Accidental Health Insurance, Cell Phone
  Insurance
• Petrol Station Auto Insurance, Travel
  Insurance, Accidental Health Insurance
• Airport Auto Insurance, Travel Insurance,
  Accidental Health Insurance, Temporary Life
  Insurance

46
Potential New Entrants to the Life Insurance
Market

• Perception of Mass Affluent Customers as a
• Financial Services Provider
• Microsoft (39.4)
• Wall Street Journal (37.9)
• IBM (24.6)
• Coca-Cola (23.6)

47
Special Risk Advocates

• Specialist insurance advisers
• Excellent working relationships with
  underwriters
• Place cases which have previously been declined
• Help people with following conditions
• Alcohol or drug abuse, cancer, depression,
  diabetes, hazardous occupations or hobbies, heart
  disease, hepatitis C, hypertension, obesity,
  stroke, tobacco use

48
Summary
49
Summary

• Companies getting bigger usually via
  acquisition
• Little product differentiation copied quickly
• Administration efficiency is key to profit growth
• Alternative distribution methods being used
• Productive advisers are essential

50
Beyond the Black Stump Life insurance industry
outside Australia