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Opening the ‘black box’

Tuesday 10 October 2017


* This article was originally published in the Conference Edition of the GRC Professional

* Please click Here to dowload a PDF version this article

The financial industry is a ‘black box’, according to Sally Loane, CEO of the Financial Services Council (FSC).

Loane was part of the panel that spoke at the launch of TAS’s Insurance Industry Report, put together by Manning Co. Outside financial services, Loane noted, no one really understands the nature of the services that are being offered.

“We mostly talk in acronyms and jargon,” she said. “Politicians just want to understand what we do, so we have to speak to them in plain English.”

Talking about what financial services does, in plain English, is not difficult, Loane emphasised. “We can do it at a family barbeque.”

She went on, “We go in front of these parliamentary joint-committees, and you know, you get grilled and its gets tough. But really, these are ordinary people who just want to know about our sector, and we have to embrace that. “
 

The FSC Life Insurance Code of Practice
Prior to the TAS event, GRC Professional got a chance to talk to Loane about the Code of Practice and her members’ willingness to engage more with consumers to enhance both trust in and understanding of the products with which they have to keep up.

“The Code of Practice really started two and half years ago,” Loane explained. “The FSC decided to have a root and branch investigation of the life insurance business. The commissions paid on life insurance sales had been carved out of the FOFA legislation. There are now no commissions paid on the sales of financial products, but life insurance had been carved out.”

After that, Loane explained, John Trowbridge, former Australian Prudential Regulation Authority (APRA), initiated the Trowbridge review into life insurance. Out of that extensive and independent review, Trowbridge recommended a number of things:

  • Change the remuneration for life insurance advisers; and
  • Implement a code of practice between life insurers and consumers.

The Code, which also applies to industry and members of the FSC, came into being on the first of July this year.

“For all of our members, it is mandatory,” Loane said. “Everybody who buys insurance gets a copy of the code. It’s on our website, it’s on the website of all of our members.”

The FSC is now looking to extending that code to people who have life insurance in their group superannuation.

Recently, Ian Silk, Chief Executive Australian Super, said regulators told the superannuation industry they were not doing a good enough job with life insurance in superannuation; however, he noted the Superannuation Insurance working group will change things substantially.

The purpose of having the Code of Practice is that it will strengthen the social compact between the life insurance industry and the Australian public.

“Life insurance is not one of those products about which people get up in the morning and say, ‘Oh God, I’ve got to have life insurance!’” Loane said. “It’s something that often needs some encouragement. Thus we are very keen to make sure, when people buy life insurance, they have a product they can trust.”

The Code goes a long way towards strengthening the relationship between life insurers and customers who buy their policies.

But have the members of FSC—who operate in the insurance space—realised the necessity for change?

The answer is yes. FSC members are embracing the fact that it is time for the industry to change.

And there has been change. Loane has noticed a swathe of companies embracing new digital technologies, for example.

However, those in the industry remain aware that it is really consumers who are driving the changes in the market. “In the Australian Life insurance market,” Loane said, “everybody is equal in size.”

 

Focussing on convenience and solving the ‘pain points’ in the business
Loane used the example of Uber, who looked to solve the pain points in public transport. The focus must be on customers.

This falls in line with the speech Loane made at the FSC Summit a few weeks earlier about how to get increased engagement.

“Deloitte interviewed digital financial services companies, some of them start-ups, and this is what they said:

  • Make it digital: Most super funds were set up when the internet was in its infancy. Many haven’t embraced digital. Those that have, get rewarded. The Commonwealth Bank’s Essential Super experienced a 37 per cent increase in members via its digital channel last year, of which almost 90 per cent were aged between 18 and 24.
  •  Make it fun: NRL star Beau Ryan’s “sex or finance” quiz for GROW Super on Facebook has notched up over 120,000 views. For a superannuation product! 
  • Make it meaningful: Increasingly, people want to know how their investments are impacting the world. Goodments, a start-up investment app that matches investors to ESG values, found 56 per cent of customers surveyed would accept slightly lower or average financial returns in exchange for good sustainable performance. 
  • Make it simple: Some new digital funds are using the Acorns roll-up spare change model. Combined with compound interest, it’s a powerful prompt and affords instant gratification.
  •  Make it relatable: Millennials don’t compare their super fund experience with other super funds. Their benchmark is their experience with Uber or Deliveroo.”