Home / Life Insurance / Regulatory scrutiny is life insurersí highest hurdle: EY
9 December 2019
More stringent regulation is the top challenge faced by life insurers in Australia and scrutiny of commissions here may limit investment in technology, a new report from EY says.
Australia’s life insurance penetration rate has dropped to 2.1%, down from 3.1% in 2013, while non-life market penetration has increased to 3.5%, from 2.2% in 2013.
“While a number of common challenges – such as global economic uncertainty – confront life insurers across the region, local conditions differentiate individual markets. In Australia, more stringent regulation is the main challenge,” EY says.
Regulatory scrutiny of commissions in Australia may limit the ability of insurers to invest in technology, especially for advisers, the report warns, noting the Hayne royal commission findings recommended the elimination of commissions from the sale of life insurance unless insurers can make “clear justification” for their existence.
“In the past, insurers were able to recoup some of these investments through ad hoc negotiation on embedded commissions,” EY said.
It says the return on investment for digitisation initiatives has not been as large as hoped given the size of the investments, but things are changing quickly, especially in mature markets such as Australia.
Locally, life insurers are focusing more on platform transformation than their regional peers and direct-to-consumer channels are more prevalent as brokers and agents gradually “cede ground” to digital.
“Consumer preference for interactions and relationships with insurers skews strongly towards digital,” EY says. “That’s true even for life insurers, particularly in mainland China, Thailand and Australia, where consumers prefer digital channels over traditional agencies by significant margins.”
Co-ordination among regulatory bodies across the globe is leading to a “waterfall effect” of best practices.
EY says Australian customer protection laws follow the UK template.
“While regulatory compliance is often burdensome, it can align well with insurers’ goals in terms of meeting consumer needs. Insurers need efficient systems and processes in place, as well as rich and relevant data sets and strong analytical capabilities.”