Life industry transformation just beginning, says Ailo’s Pain
By Richard Hubbard
Pain, who is chairman of Investors Trust Assurance, has more than 30 years of experience in the life insurance industry, having also worked for the Target Group, Axa, and Friends Life.
His experience spans sales, business development, marketing, customer services, change management and business process outsourcing.
Bob, what is Ailo up to?
Since its launch Ailo has progressed from its beginnings in the Isle of Man to European jurisdictions, and more recently to other continents.
Although our core work is in Europe, we have had a working group in Hong Kong for the past 15 years, we launched one in Dubai this year and I am hoping I can set one up in Singapore when I go there in June.
There is an appetite for having people on the ground in these jurisdictions, to network, discuss good practice and to help mould regulation.
A new idea for Ailo is affiliate membership, which will allow it to work alongside other associations that are lobbying their regulators and legislators.
Ailo can support affiliate members as it has experience of regulation in a mature region, such as Europe, which has already implemented many of the regulations that emerging markets now face.
How do you view recent changes by life companies?
A number of larger, more established, composite companies have been reviewing their strategies and considering how much risk and reward is coming from each unit of their business.
Some offices have decided that the reputational risk of some markets are too great and so have either withdrawn from the sector or closed to new business.
The dynamics of life insurance mean there are usually higher costs in the acquisition phase – as a result of high upfront commissions and administration charges – than in the maintenance phase. Closed books can be run very profitably.
We are also seeing many new companies entering the international insurance market where more established companies have withdrawn. This ensures the independent financial advisers still have a choice of products for their clients.
What are the risks insurance companies are considering?
Risk is fundamental to any business, small or large. The risks are also numerous. For the international life companies, the larger risks would be reputational, regulatory and legal, financial, market and operational.
Where do you think we are in this process of structural change?
We have just started as we are overstocked with insurers, particularly in the developed markets, and there are more and more consolidator companies emerging. These companies prefer critical mass, so will keep adding companies until this is reached.
Another area that is topical is the role of offshore financial centres and the question of greater transparency in their operations.
Transparency in our industry is coming very fast and with initiatives such as the common reporting standard and the Foreign Account Tax Compliance Act, and the reaction of people globally to the Panama Papers, I can foresee further movement on this matter in the years to come.
What about the role of the offshore financial centres?
There is much misunderstanding about their role, hence the sensational coverage in the media. The international life insurance industry does not, for example, hold assets in shell companies. It is a mainstream industry with many legal benefits for policyholders.
One reason life companies set up subsidiaries in international offshore centres was because of the tax position, not only for the potential policyholder but for the life company itself. Their tax treatment is often lower than it would be in their home countries.
Many islands have become reliant on the financial services industry, which has attracted many talented workers who have brought prosperity where previously none may have existed. Also, the quality of product offered by offshore centres has brought competition in the countries where they are sold, often improving onshore products.
Expat policyholders are attracted to offshore centres because they offer better governance, political stability, neutral or low tax regimes and a more familiar legal system than the countries they are working in.
What is the impact of technology on the industry and advice?
There will always be a place for face-to-face advice. However, technology will enable the advice process as opposed to replacing it.
For the younger generation, technology is part of their lives and they will see its use as fundamental to their buying process.
You will see a definite shift to clients being more comfortable with technology and advisers benefiting from technology.
Much has been written about robo-advice, but it isn’t sounding the death knell for the face-to-face adviser. In most cases, robo-advice will be used to support advisers giving face-to-face advice by helping them deliver the needs-based solutions clients want.
The days when life companies had large storage houses full of files have gone. Now, some life companies do not even use scanned documentation because they have electronic applications to deal with each aspect of the process.
So, we have migrated from paper storage to microfiche, and from scanning to pure electronic data. You have also got expert underwriting systems now, that allow life insurance to be processed much quicker than they would have done in the past.
Will products stay the same or become more complex?
Products could become more bespoke using the vast amount of personal data that is now available, so truly meeting event-driven needs.
For products that are being sold directly, you could see a more simplified versions or even menu-based products, where an adviser can match riders to a client’s needs.
What is Ailo’s view on the current scale of regulatory change?
The life insurance industry is very robust and there are always going to be people who die too soon or live too long, which is what our products are designed for, and that hasn’t changed and will not change.
If you distil what regulation is endeavouring to do, it is fundamentally trying to improve the quality of advice and protect the policyholder. The majority of regulation is sensible, appropriate and relevant.
It is just that a small percentage of the regulation introduced can be unworkable within the timescales set, for example, the key information document in the packaged retail investment products legislation in Europe.
How about elsewhere in the world?
Currently there is no global regulation of the life insurance industry. Not every regulator is implementing everything at the same time, so this has led to different levels of regulation in different countries.
Some emerging markets – Hong Kong, Singapore, UAE – are coming pretty close to the developed world in terms of their regulatory regime. However, many frontier countries are understandably further back.
The Association of International Life Offices (Ailo), established in 1987, represents the interests of the cross border life industry.
It is registered in Guernsey and its secretariat is in Brussels. Its key objectives include representing its members’ interests to legislators, regulators and other trade bodies; encouraging professionalism; and to provide a forum for networking and knowledge sharing.
Membership jurisdictions include Isle of Man, Channel Islands, Dublin, Luxembourg, Cayman and Bermuda as well as informal groups meeting in Hong Kong, Dubai and soon Singapore.
It has associate members representing third-party administrators, reinsurers, software houses and management consultancies; and intends to expand this category.
It is planning to introduce an affiliate membership to link with other like-minded associations globally.
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