In recent years the group insurance market has been through a searing experience. Claims soared and insurers’ profits fell sharply.
The industry has been moving to a more sustainable footing, but is that shift threatening product design innovation and the quest to deliver a more personalised, tailored insurance product to super members?
“I really think things have been quieter on the innovation front,” says Geoff McRae, a senior consultant at Rice Warner.
McRae says the focus has turned, at least in the short term, away from any significant innovation programs to ensuring that profitability is restored.
“Up till three years ago, people were quite focused on innovation and better meeting members’ needs and catering for individual requirements within large groups,” he says. “There’s been a bit of a pull back from that, given the very significant losses insurers and reinsurers have made over the past three years.”
But insurers and trustees maintain that product innovation is still on the agenda, and there is a strong focus not only on sustainability, but in better meeting members’ needs and making products more relevant and improving engagement.
“Australia is right at the forefront of innovation,” says AIA chief executive officer, Damien Mu.
“And it’s not just about sustainability requirements and member needs from a financial perspective, but it’s about what’s relevant and how we better engage members through technology and programs.”
Australia’s group insurance ‘market leader’
Mu says that Australia’s group insurance is “an amazing vehicle”.
“We are unique; we are the market leader in terms of group insurance worldwide. There isn’t another market that is like it, with large super funds with default insurance at the level we have.”
Mu agrees that product innovation has become closely linked to sustainability, including looking at cutting claims by helping people become healthier, be rehabilitated and return to work.
Sustainability is vital, given that insurance premiums are coming out of super, Mu says. “It [insurance] isn’t the main game, it’s about retirement savings,” he says.
But Mu says that over and above sustainability, there is also an increasing focus on providing product that doesn’t just meet the financial needs of members and claimants, but that is relevant to their individual circumstances.
What members really want
Mu cites one of the major recent product innovations, Sunsuper’s TPD Assist, which launched on July 1. The product is designed to help members return to work, but they also receive payments over a period of time, and in instalments, based on still needing the benefit.
The genesis of the product was in research, which found that what members who have made TPD (total and permanent disability) claims really want, is a return to work. Indeed, an in-depth study found that of the members who had previously been paid a TPD claim, some 36 per cent had returned to work or were actively seeking employment.
Rather than members wanting a lump sum and ‘see you later’, Mu says that the research showed that TPD benefit claimants actually wanted help with things like job hunting, changing an occupation after an illness or injury, and retraining and upskilling.
Mu says the product is an example of one that is sustainable – higher return to work levels means lower payouts – but a product that is also more relevant.
Sustainability a major driver
Rice Warner’s McRae, however, says sustainability is still the major driver in such innovations. He says that, yes, Sunsuper’s move to pay TPD by instalments is in the best interests of all members.
“But the arrangements might not be in the best interests of a particular claimant, because it’s going to tend to either reduce the payout they end up getting, or have it spread out over a longer period than previously,” he says.
McRae says many changes driven by sustainability, including more health evidence, and rehabilitation and retraining being built into TPD definitions, are sensible.
Changes were needed.
“You can’t continue to run a business that’s losing money,” he says. “Certainly some of the very substantial changes in benefit design have been more directed at making the business more sustainable, rather than the previous aims of better meeting member’s needs.”
The need for sustainability has been reinforced by APRA, highlighting the fact that trustees should be considering how the cost of insurance possibly detracts from members’ retirement income.
“Affordability is being looked at more critically,” McRae says, adding the industry needs to get a balance between the cost and impact of insurance, and the role of super, in delivering retirement savings.
Brett Clark, TAL’s Group chief executive officer and managing director, agrees. “It’s all well to have insurance premiums go up to reflect the high level of claims, but what’s the right level of insurance inside super to ensure members and Australians still accumulate retirement savings?”
Term may inhibit innovation
But when discussing innovation inside group insurance, Clark has a stronger message: the term ‘group insurance’ actually inhibits innovation, and particularly innovations that drive personalisation.
Clark says he “doesn’t really like the narrative around group insurance too much”. The term ‘group insurance’, according the Clark, could lead to product limitations, because it means a focus on building wholesale and big default programs.
“If we’re really going to get more innovative, we need to drop the whole concept of group insurance and think ‘how do we design insurance products inside super that are relevant for members, and how do we deliver them effectively and simply for the member’?”
Clark says the industry needs to move away from designing products which are built for bulk delivery for large cohorts of members. “There is a place for that, but how do we mezzanine product design arrangements to bring individualisation and personalisation?”
That might mean bringing product ideas from retail and direct insurance inside super, for one, Clark says.
Size doesn’t have to be an obstacle
But by definition, group insurance refers to a collective, and with the consolidation of super funds and the surge in the size of the big industry players, such as AustralianSuper, that collective is only getting bigger, which one might think would inhibit the delivering of personalised insurance.
Clark says size doesn’t have to be an obstacle to innovation. “I don’t think size necessarily makes it more difficult to tailor,” he says. “But when funds are a certain size, we need to be able to reach members individually in very effective ways. We need to think about, not just product innovation, but how we deliver product in innovative ways.”
Clark says the work the big funds are doing in financial advice and engagement show that personalisation can be done. “Those capabilities need to apply equally to insurance as well,” he says.
“Building product, frankly, is the easy piece. It’s taking the offer and proposition to members individually and having them engage in that proposition individually that is the hard part,” Clark says.
Matthew Beardmore, product manager at the Commonwealth Superannuation Corporation (CSC), does think size matters.
He says he: “completely agrees there is a real focus on sustainability of premiums”.
“Funds are starting to make that change, but it does have to be an industry-wide initiative,” he says.
He also agrees that relevance is also important. “You have got to understand what your member base experience has been,” he says.
But Beardmore believes his fund is better placed to deliver that relevance than larger funds. “We’re starting to see that bigger isn’t always best when it comes to insurance,” he says.
“Big super funds have a multiplicity of different occupations and different types of members and it does become increasingly difficult to fit a product to all members. We are a very particular group of members; in terms of designing something of relevance to our members it’s a bit easier.”
From October 1, CSC is introducing its new lifePLUS insurance plan. It has moved to drive sustainability through integrating the disability benefits (IP and TPD) more, with the focus moving from offering discrete, standalone disability benefits, to providing benefits which work together, to both help members meeting their immediate financial needs, and allowing time to properly assess a person’s capacity to ever return to work in the future.
But is has also introduced more personalisation. For example, it is offering default income protection benefits based on a member’s salary rather than a significant default TPD lump sum benefit, which allows the benefits to be tied more towards a needs-based design.
Simplicity a key factor in product design
Simplicity is becoming a key factor in product design for CSC, Beardmore says, noting it’s about ensuring the product is as easy to understand for all concerned with insurance.
CSC’s current insurance offer (pre October 1) had three key dates associated with the default cover that members had to think about. This has been changed to one: 60 days. The majority of members receive default cover (lifePLUS auto) within 60 days of joining their employer (casual employees have 60 days from receiving their welcome advice to opt in for this cover), their income protection benefit has a 60 day waiting period and they have 60 days to opt out without incurring premiums.
“This not only helps to simplify understanding for members, but has the added benefit of simplifying things from an administrator perspective (people and systems),” Beardmore says.
Beardmore says that apart from sustainability, CSC is mindful of creating ongoing conversations with members through better engagement. “It’s about being able to have conversations with members,” he says.
“It’s also about giving the member some consistent points of contact through the claims process. With that consistent person we can set expectations, outline the process and reassure them. It goes somewhat to reinforcing the trustees’ role.”
“Servicing is a key aspect to supporting any product design,” Beardmore adds.
Member engagement ‘a fertile area’
AIA’s Mu agrees that member engagement is a fertile area of innovation.
He cites AIA’s health and wellness program, Vitality, which is integrated into its retail insurance product. Mu says AIA is working to implement that in superannuation, which will allow members with cover to gain access to a program that helps them to know about and improve their health.
He also cites eClaims, recently launched with Sunsuper, which allows members to lodge claims online through their fund’s website, using personalised, intelligent forms. Mu says that facilitates early intervention and accelerated assessment.
“We can now get to people earlier in the process,” he says, adding that after the first sixty to ninety days, the prospect of getting someone back to work falls 50 per cent.
Give it a REST
Andrew Howard, REST’s chief operating office, says his fund is receiving a high volume of claims, which are running at 400 per month and leading to $20 million each month.
But he says when it comes to sustainability, REST is confident it has a “good, contemporary, insurance design that fits its members”. REST, for example, has a life stage approach where it introduced a long-term default income protection benefit and reduced the TPD lump sum for members, in recognition of its younger demographic.
Howard says rather than product design, the fund is more focused on innovation in process and servicing, which delivers a better customer experience, but that also helps maintain sustainability. He has a simple goal: stop hearing people say the claims process is difficult.
REST has been working with its administrator, insurer and reinsurer to streamline and improve the claims process. It has started to take claims from members over the phone, which has helped decrease the time a member takes completing a claims form by 40 per cent between the administrator and insurer. It has also cut its terminal illness claims form by 50 per cent. REST also regularly updates claimants of the phone whether or not there is progress on their claim.
“As an industry we have tended to focus on innovation in product, but almost to the exclusion of dealing with what really matters,” Howard says.
Rice Warner’s McRae agrees there is innovation on the engagement front. “Servicing is becoming more personalised with a lot more use of telephone to collect data for claims and underwriting,” he says, adding that online systems are also improving.
Still, “that is more process than product design,” he says.
“Regardless of what people beating their chests may say, I feel that [sustainability] is very much what’s influencing people’s thinking, and certainly it has quietened down the demand for more features in products which had been getting out of hand to some degree three years ago,” he says.
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