While many industries have experienced dramatic change in the past five years, innovation in the life insurance industry has been minimal, says Oliver Wyman Principal Angat Sandhu.

“Products are still bundled and it is a intermediated industry,” he told the Actuaries Institute Financial Services forum in Melbourne. “The systems are archaic and customers are frustrated and annoyed.”

Mr Sandhu says life products are hard to understand, they are all the same, and they are “static” and expensive.

The distribution model is inconvenient, intrusive and irrelevant, and servicing levels are poor.

“Customers are now saying if the product doesn’t meet their requirements, they won’t buy it,” he said. “Insurance is something they don’t think about, so they must have a product they can relate to.

“Most life companies still struggle with understanding the customer.”

Mr Sandhu says life insurers will come under pressure from four trends that will drive change.

“Customers are being empowered and they are more discerning,” he said. “Regulatory pressure is coming at a faster pace while data is under-utilised.

“Technology is enabling new players to enter the market.”

AMP Head of Insurance Strategy Justin Ward told the forum the life industry needs to look at alternative business models.

“The question is, when will the industry stop being a lagger and become a leader?” he said.

“Is the industry willing to change its business models?”

Mr Ward says the life industry is facing declining growth and profits, and that is putting business models under threat.

But despite new players being more nimble with better use of analytics and experimentation, the traditional life insurer is still relevant because they have “domain” knowledge the start-ups don’t have.

“Life insurers are in dire need of innovation,” he said. “But a challenging external environment will make it hard to drive change.”