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Financial services in Australia

14 March 2008 Gareth Stokes

Last week FAnews Online attended the Insurance Leaders Forum hosted by the newly formed Financial Intermediaries Association of South Africa (FIA). The theme for the Sun City conference was “the move towards professionalism.” The first speaker on the b

The death of customer services

Death of a salesman is a play by Arthur Miller. The central character is an ageing salesman who is unable to adapt to changes in the environment in which he operates. In the opening minutes of his presentation, Pettersen concludes: “There are some subtle parallels with the issues that Arthur Miller was exploring back in the 1940s and 1950s with what’s happening right now in the world of insurance – particularly the world of the insurance broker.” The one constant in the global insurance industry over the last decade has been change. And the overarching challenge to the intermediary operating in that environment is to adapt to that change.

Regulation has resulted in some of the major industry trends being rather counter intuitive. Against the backdrop of increasing regulatory pressure and more educated consumers the role of customer service has slowly dwindled in importance. Pettersen notes that in 1991 a survey of the major issues facing insurance brokers was conducted in Australia. Back then, brokers ranked Distribution and Marketing in first position with Customer Service trailing in sixth place. Fifteen years later Customer Service had dropped a position to seventh, while Regulatory Compliance was top of everyone’s mind. In the latest survey, conducted in 2007, Customer Service had simply fallen from the list.

One would expect that insurance intermediaries would rank customer service much higher. The relationship between insurance broker and client is one of the industry’s differentiating features. Strip out that relationship and the consumer will not realise any benefit doing business with a broker as opposed to going the direct route. Instead Pettersen points out that “the broker concerns that have gained prominence in recent years have been attracting quality staff, retaining good people and also transparency and public perception – what people think about the industry.” And that leaves him wondering “if there’ll ever be a time when we see customer service rank as the number one driving interest for brokers and the industry generally.”

Regulation, self regulation or over regulation

Regulatory intervention in the Australian financial services industry is a leading indicator for what happens in the domestic arena. Australian regulators saw the need for further intervention despite a fairly comprehensive system being in place. They introduced the Financial Services Reform Act (FSRA). “This act came into power in 2004. We had previous legislation that had worked very well for over two decades. So the insurance broker industry did not need much fixing anyway. We were caught up in a wave of harmonisation across the financial services sector – and what we got initially was a compliance load that was heavy and expensive,” said Pettersen.

He says brokers were forced to comply with more than 500 pages of complex law and regulation with particular focus on disclosure. In the immediate wake of the 2004 introduction of this legislation broker numbers dwindled from 1 100 to 750. While regulation is a necessary evil, Pettersen believes “The best protection for insurance buyers is a strong industry that delivers quality trust and value…” Excessive regulation might ensure quality and trust; but it raises costs and perhaps weakens the industry by forcing smaller players out of the game.

The result has been a significant “change in industry dynamics…” Five years ago the largest five non-life insurers accounted for around 30% of Australian insurance business. Today the same five insurers write 80% of business. Extensive regulation and cost favours those companies with the budget and staff to fully comply. Smaller companies are forced to take their eye from the ball; spending too much time on compliance and too little on conducting business.

Direct insurance loses ground in Australia

“A recent survey shows that broker dominance has in fact grown in the past year on the car side by around 12%. And even in personal lines the amount of business sourced by brokers has gone up by almost 4%. At the same time the direct distribution has gone down by 6%,” says Pettersen. This proves that the insurance broker can weather the direct insurance storm despite improvements in Internet selling channels.

He believes part of the industry’s future success will be to increase public awareness of brokers and the value they add. “Not everyone knows about brokers and what they do!” To this end NIBA created a massive marketing campaign underpinned by a website: (http://www.needabroker.com.au/). The website attracted more than 100 000 unique visits and 500 000 page views over a six month period. “The brokers themselves need to promote their services more widely – the more you get involved the easier it is to get your message across,” says Pettersen. Another major challenge will be to attract younger people to the profession. He notes that Australia shares South Africa’s problem of an ageing broker population – the average age of brokers in his country is approaching 58 years.

The way forward for the insurance intermediary is to develop his professional skills and make sure he provides the best possible service to his client. This differentiation will ensure survival in a world where everyone with a database is competition and where customers are more dependent on electronic media to transact business than ever before.

Editors’ thoughts:
It emerges from this conference that insurance intermediaries around the world have similar issues. They are all keen to elevate their states to that of ‘financial services professional’ and are all snowed under by regulatory requirements. Has the greater regulatory burden shifted focus from excellent customer service to compliance? Add your comments below, or send them to gareth@fanews.co.za

Comments

Added by Clyde Langley, 17 Mar 2008
Although I do my best to be compliant and we should have an ethical standard by which we do business, but I see the industry as over regulated. I honestly believe that those in regulatory positions that control our industry are people who failed in their vocations elsewhere and now laud it over others. I have been in the insurance industry for 35 years and can honestly say that I have never had a disgruntled client. I will admit that I have lost clients to other intermediaries over the years because of better rates, but I have also gained from other intermediaries There was a time when there was the wheat board, potato board, banana board etc., who controlled and over regulated various agricultural bodies down to the retailer of these commodoties. The people who held positions on these boards were predominantly failures in other careers. These were jobs for pals. They were not accountable to society in general. If ever there was a cushy job, they had it, and those controlling our industry fall into the same category. The industry requires us to qualify academically, and I think it is a good thing, however there is a situation where certain people have jumped on the lucrative bandwagon to provide courses towards the 120 credits we are supposed obtain within the next few years. In 2006, FA's were introduced to someone who was highly recommended, who shall remain unnamed, to train us for the 120 credits at the NQF 6 level. We were told that he would take us through to the full qualification and that it would not be necessary to do a NQF 5 qualification first. We completed and passed the first 60 credits in 2006 at NQF 6 level. I must say that the course was very professionally and well presented. Out of the blue in the first week of February 2008 we were informed by email that the person in question was not going to complete the course with us and was handing the reins over to another institution of whom we had not heard of before. The email advised us that on 25 February 2008 the additional 60 credits course would begin, giving us three weeks notice, and that we were to pay R8500 up front to complete the course I have learnt that I should not part with my money unless I have been provided with adequate product information to make an informed decision. If the institution that is to teach us compliancy is itself not compliant , what hope do we have? I, with others declined the invitation and started enquiring elsewhere to complete the course. I approached Damelin, who asked how it was possible that we were doing a NQF 6 course when we had yet not completed the NQF 5 model. Furthemore it appears that we will be unable to build on the 60 credits' chassis with another institution other than the one mentioned in paragraph six hereof. My question to the FSB who require us to be academically qualified in order to maintain our licences, have not seen to it that the curriculum pertaining to our courses are compatable and the institutions in themselves are compliant. This brings me to the point of the FSB's lack of supervision over the academical institutions that offer these courses. But will the FSB take blame for the apparant debacle? Of course not - they're above the law. Regards, Clyde Langley
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