Making life easier

The staid old life insurance industry is undergoing a quiet revolution as companies with superior technology undercut the lumbering banks that dominate distribution networks.
Technology that allows consumers to get life insurance cover without medical examinations and time consuming interrogations is taking off.

The old adage about life insurance having to be sold and never being a discretionary purchase is proving outdated. Australians are embracing the opportunity to sign up for life insurance online.

A side effect of the trend toward the simplification of life insurance underwriting is that the investment platforms that have become the gatekeepers for the sale of financial products are being challenged.

The platforms are fine for directing flows from financial planners to various products sold by financial institutions, predominantly banks, but they are often not capable of providing the tailored life insurance products consumers want.

Tower Australia chief executive Jim Minto drew attention to the life insurance industry's changing dynamics at the release today of financial results which showed a 13.5 per cent increase in individual in-force premiums to $493 million in the six months to March 31.

Tower's term life sales rose 15 per cent on the previous corresponding period and income protection was up 10 per cent.

Minto said consumer demand for greater flexibility in life insurance purchasing was coming through in Tower's dealings with superannuation funds.

He gave the example of the small industry fund that had installed Tower's life insurance underwriting software to give beneficiaries an alternative to the fund's default life insurance option.

Tower's online insurance division, InsuranceLine, became 100 per cent owned during the interim period.

The online product plays into the natural tendency of Australians to not seek financial advice. It's no advice business model relies on television advertising as its primary marketing tool and backed by call centres.

Tower has invested significant amounts in the automation of life insurance underwriting. Its electronic underwriting through the Accelerated Protection product set. It says it can approve more than 85 per cent of underwritten decisions within three days for customers 45 years or under.

Almost half of Tower's sales through the adviser channel are completed using this automated system.

Minto said the entry into the market of the online insurance group Real Insurance had led to a significant increase in the size of the overall market rather than slashing the market share of existing players.

Real Insurance is the trading name of the South African owned Hollard Insurance Company. Its life policies are issued by Hannover Life Re of Australasia.

ING Australia is another company doing well from the trend toward greater consumer use of online insurance portals.

Minto says the attempts by the investment platforms to compete with the specialist life companies had so far been very week.

Although platform providers had tried to take the life insurance underwriting in-house they had struggled to provide a similar level of technology.

Tower's interim results were given the tick by broking analysts and the share market. The stock rose 3.75 per cent to $2.49, a four month high.

Goldman Sachs JBWere analyst Ryan Fisher said Tower's "noise-free" operating profit outcome seemed to have been good and it seemed as though Tower would have an even better operating profit run rate in the second half than earlier expected.

However, he warned that the 106 per cent rise in income protection sales thanks to the new Accelerate product did not sound ideal at this stage of the economic cycle.

Minto defended the higher sales of income protection products and said it was not necessarily increasing the risks in the Tower book.