[The Wrap] Hurrah! Big banks exit life insurance

With news this week Fidelity Life has bought Westpac's life insurance business marks the end of the major bank's foray into this part of the market.

Interestingly each bank has sold to a different company; ASB to AIA, ANZ to Cigna, BNZ to Partners (although the deal still has regulatory hurdles to leap) and Westpac to Fidelity.

Asteron is the only one which has missed out on picking up a new business. Whether the company bid for any of them is an unknown.

Who got the best deal? Only time will tell, and a large part of the answer to this is how each bank treats the partnership. Going back years ASB and Sovereign showed it can work.

Each of the purchasers has entered long term distribution deals. As we have consistently seen banks can be a little inconsistent in how they deal with various parts of their business.

Having expert life companies take over these businesses is arguably good as they have much superior product to bank-manufactured policies.

Likewise, having better products should be good for customers. The only caveat here is that life insurance companies picking up these books of business should be treating customers the same as their existing ones and rolling out improved and upgraded policies. One piece of feedback from advisers is that has not always happened when a life business is sold.

I have always wondered if banks really understood how life insurance works as it is a far different business to anything else they do. I says this as one senior bank executive, who had just taken over running the organisation's life insurance business, confessed to me he did not understand how it worked.

Others who have had senior positions within banks have expressed similar sentiments and talked about some of the internal machinations which went on internally.

The road to integration can be long and complicated. Just look at how long it has taken Cigna to digest the ANZ business OnePath and start to ramp up in the adviser channel.

No doubt Partners Life and Fidelity are going to have their hands full for the next few years resourcing up their businesses and taking over bank distribution. As both these companies have been so focussed on the adviser channel let's hope they don't lose sight it.

Comments from our readers

On 11 July 2021 at 1:01 pm kevin glynn said:

Pretty good summary and one hopes they do not become too internally focused. Life insurance in NZ seems very heavy on product micro details and seems behind on the whole digital experience for advisers and customers. Given NZers are usually early adopters this is disappointing but the new scale should allow things to change.

There has been a lot of focus on advisers but my observation is many insurers need to become more efficient and digital to offer better value.

On 11 July 2021 at 5:01 pm gavin austin adviser business compliance said:

Hi Kevin -You say -“There has been a lot of focus on advisers but my observation is many insurers need to become more efficient and digital to offer better value”. – Better value to who? For the customer the true value of life insurance is at claim time and this is where “better (true) value is added by having an Adviser involved in the claim. No need to say anything more than that.

On 12 July 2021 at 9:24 am LNF said:

Banks are very smart, so maybe there is another factor. New Business
Staff can no longer be rewarded for sales. New rules
Staff can in fact be reprimanded for some sales. "Customer best interest". Who interprets that anyway
So what enthusiasm have staff got to sell new business.
Bureaucratic unintended consequence
Just my guess

On 12 July 2021 at 11:02 am jeff m said:

Hi Gavin
Your view of value makes a point but seems narrow and I suggest you refer to the regulator's review and how they see value - refer page 6 of the FMA report below.

The loss ratio for a product is shown as an indicator of value not just the individual claim experience. All things being equal if insurers are inefficient then the loss ratio is lower and there is likely to be less value for customers.

Having an adviser involved at claim time is of course good but customer value may also be enhanced if insurers become more efficient and the loss ratio increases (e.g. the efficiency savings passed on to customers via lower price or better benefits so more claims).

https://www.fma.govt.nz/assets/Reports/Life-Insurer-Conduct-and-Culture-2019.pdf

On 12 July 2021 at 2:55 pm gavin austin adviser business compliance said:

No Kevin my view is not based on the FMA report. I haven't even read it. Why would I bother. What they know about life insurance you could write on the back of a postage stamp. As Jp has pointed out 3rd party distribution via the likes of Banks etc is a dying disribution channel as the Bank Staff were motivated by incentives which of course Banks ets are no longer allowed to do. Efficientcies being transfered to lower consumer costs is a very hard pill to swallow. Partners Life is the most efficient in NZ with arguably the best policy wordings yet thier premiums are not always cheaper. Where have the saving fro efficiency gone - shareholders returns. By the way I've been associated with fincail services for 50 years starting in Life Insurance (3 years as the NZ Claims Manager for a large life insurance company - not a Mutual) and moved to Investment Advice for 25 years before moving to Compliance. Are you an Actuary by any chance?

On 12 July 2021 at 4:21 pm Dirty Harry is back said:

You're all over-thinking this.
Under the new rules and regs the powers that be have a bigger stick, and new standards to enforce that require creating good outcomes, PTICF - including during product design and creating rem structures, and treating clients fairly.
Now, you could do all that...or you could decide there's no(t enough) money to be if you do, and call it a day.

On 13 July 2021 at 8:21 am Backstage said:

Whatever your emotional reaction is to this news there will be a growing place for bank distribution. If i have the same legal obligations on a client paying $25 per month as the one paying $4,000 per month and given the work is roughly the same for both.. unfortunately the bank can deal with the $25 per month and that could be a shame but this is now the environment. Bank distribution is not dead and will resurge.

On 13 July 2021 at 9:46 am dcwhyte said:

To Backstage - there's a difference between banks distributing and banks manufacturing. If Banks remain in the advice space and distribute products manufactured by a third party, they will be subject to the full raft of legislative/regulatory oversight like any other financial advice entity. Removing themselves from product manufacture and distribution signals the end of the banks' vertically integrated structures that nearly destroyed the industry in Australia.
It's not that long ago that Banks were buying up life companies - the worm has turned!

On 14 July 2021 at 7:52 am Backstage said:

I totally agree David on the manufacture of products being best lead by insurers. The banks products to date have been mostly poor quality and expensive so hopefully the client will get a better outcome :)

On 16 July 2021 at 4:26 am Tony Vidler said:

the very point that dcwhyte makes above will in itself become the challenge for the insurers who are buying the bank distribution. It is simply vertical integration being developed from the other side isn't it?

Instead of the bank being a manufacturer and distributor now we have an insurer being a manufacturer and distributor.

same conflicted model as before isn't it?

Just looks like the deck chairs on the Titanic were shuffled to me.

On 16 July 2021 at 10:20 am dcwhyte said:

No argument there Tony. And we've seen how the vertically integrated life company model turned out for AMP. I suspect there may have been other management issues at play in that instance.

Allied Dunbar (UK) in the 1980s and 90's ran a very successful multi-channel distribution model, with their own direct, tied agency, and IFA channels operating independently and effectively - I guess it all depends on culture and strategy - both of which Allied Dunbar executed exceedingly well.

In defence of the Life Companies, at least they can claim to be in the business of life insurance and should be able to distribute their own products as they see fit.

But the potential risk of channel conflict is significant.

Whether independent Financial Advisers are comfortable with the companies' distribution strategies is a professional choice to be made with the clients' interests in mind and the Code to be observed.

Suffice to say that all sorts of issues around resource allocation, cultural integration, systems management, product design, and client servicing capacity arise.

One thing for sure, Fidelity and Partners will be plenty busy over the next few years!

[The Wrap] Hurrah! Big banks exit life insurance

All the big banks have now exited the life insurance space - and that is probably a good thing.

Sunday, July 11th 2021, 10:43AM 11 Comments

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