AIA: The leadership vacuum
Despite injecting capital close to $1 billion in claims and maturities last year, insurers continue to fail New Zealanders in critical ways. Darrin Franks, AIA New Zealand's Head of Distribution and Marketing, says if the sector wants to survive and thrive, it needs to start paying real attention to consumers.
Tuesday, March 1st 2011, 9:00AM
by Darrin Franks
At a recent adviser conference, I participated in a leadership panel presentation which sought the answer to the question, ‘If I were running an adviser business, what would I do?'
In two years' time, who would be the winners, and why? What would your approach to the industry be?
To the question I answered simply that neither I nor my leadership colleagues on stage were probably qualified to speak with any authority because we all work for insurance companies and banks - but as ambitious optimists, we'd have a go. And our credentials are impressive when you think about it: we complicate products and process and wonder why advisers can't sell; we have all contributed to churn and then told everyone it is the adviser's fault; and we have failed to improve financial literacy, seemingly comfortable that our market has one of the lowest insurance take-ups in the OECD.
There is a real lack of leadership among the market participants that have the power to change this and demonstrate consumer value, namely, insurers, advisers and industry bodies. The high rate of leadership change within our industry and the impact of this are contributing factors, and have affected our collective focus, relevance and performance.
But there is a bigger, more deep-seated problem with leadership. Our approach is all wrong and has been for decades, and it's caught up with us. To those who argue that regulation is the solution, I say: not so. Change in our financial services culture is the only answer, and change doesn't happen without leadership.
The first step is to focus on the real issue - what consumers want. This focus has been diffused by a collective tendency among industry operators to look only at what's in front of them, and over the past few years, that's been regulation. Sort that, the thinking seems to be, and it'll all be fine.
Wrong. Consumer faith in the financial services sector is already at an all-time low, and this, combined with the crunch on household spending, is affecting choices being made around insurance. Last year, the ISI reports, the number of New Zealanders covered by health insurance dropped by 10,000. Though the drop in lives covered amounts to only 1% since December 2008, this is not a trend we should be seeing in a country which is already languishing near the bottom of the OECD for insurance take-up. We have failed to maintain relevant connection with consumers while we introspectively choked on the bitter pill of regulation.
The irony is that insurance companies provide a valuable, even necessary, service to New Zealanders. In 2010, according to ISI statistics, insurers collectively paid $959 million in life and health-related claims (including maturities, other benefits and group policies).
That's nearly $1 billion going back to Kiwi claimants and their loved ones - not an insubstantial sum, and illustrative of how insurance can, and should, work for people. (And, it should be noted, for the state. Those total claims represent money that in some cases would otherwise come from government, freeing public funds to be used in other ways to benefit the population.)
Certainly, consumers need to become more informed and proactive about their own financial investments and protection. Much of the damage done in the late 2010s resulted from poor choices made by individuals due to poor financial literacy. And underpinning all that is a lack of trust. Our would-be customers just aren't listening to what we say, and even if they hear it, they don't believe it. Meanwhile, our existing customers move on every couple of years, because of the churn model we have set up and continue to support.
What industry on Earth can survive if no one believes in the products and services it provides, or whose consumer-contact representative is incentivised to push its clients to a competitor on a regular basis?
The response to the profound damage to the New Zealand financial services industry over the past three years has been to regulate and incentivise in the absence of any practical wisdom. But none of this does nearly enough to restore consumer faith - and without that, we have nothing.
The solution? Insurance businesses need to change the way they behave, and a good start would be to take the advice of economic psychologist, author and PsychToday columnist Barry Schwartz:
- Be simple in your approach
- Be honest in your dealings
- Be relevant to your customers
The value chain, from insurers to advisers to consumers, is built on trust. Right now, the chain is weak, if not broken. Three easy steps would go a long way towards fixing it.
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