Financial services in Australia
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 [email protected]
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