The Case for More Mutuals in the Australian Life Insurance Market

Riskinfo was fortunate to spend some time recently with PPS Mutual Chair, Mike Jackson, who offered his global perspective on the mutual insurance model.

Jackson highlighted the distinctions which separate the mutual insurance structure from shareholder-owned life insurance companies – and in doing so, developed an argument as to why Australia is a market that should be of great interest to other mutual insurance firms.

Background

Since PPS Mutual established itself in Australia in 2016, Jackson says adviser attitudes have changed, based on the insurer having been able to demonstrate its ability to consistently deliver on its profit share model commitments. He referred to an initial scepticism among the Australian adviser community about whether the PPS Mutual model would be able to offer competitive products, pay claims and distribute profits to its members.

“Now we don’t need to convince advisers the PPS Mutual model in Australia is ‘real’,” says Jackson, with the allocation of profits to member accounts each year serving to eliminate that scepticism.

In what is his 50^th year in the life insurance industry, Jackson has worked under both life company models. He spent his first 30 years working with South African-based firm Liberty Life, which he characterises as a very aggressive and successful share holder model insurer. For the last twenty years, however, Jackson has worked in the mutual insurance space.

Having worked for such extended periods in both company types, Jackson is well qualified to reflect on the very different nature of the two models, especially from a policy holder point of view.

Mutual Insurer Global Market Share

According to data from the International Cooperative and Mutual Insurance Federation (ICMIF), mutual insurance company models now own approximately 26% of the world’s insurance market. This extends up to 50% – 60% of the market in countries such as France, Japan and the US.

21^st Century Reputation

In recent decades, Jackson says the reputation of mutual insurance firms around the world has been enhanced following the Global Financial Crisis, “…because mutuals didn’t melt down.” He says mutual insurers generally invest more conservatively than listed insurers and hold higher reserves, so that when the GFC hit, mutuals were in a better financial position to endure and manage the severe downturn in the global markets.

The reputation of mutuals was also enhanced, according to Jackson, as a result of the Covid-19 pandemic, during which mutual insurers in some jurisdictions reduced premiums and certain professions like dentists were allowed to defer premiums – because they couldn’t work – while also reducing other covers such as motor vehicle insurance, because cars were being driven much less or not at all during lockdowns across the world.

Risk Mitigation Strategies

Jackson also reflected on a growing trend among mutual insurers towards risk mitigation strategies as opposed to reactive policy development. He said short-term insurance propositions (mostly in the general insurance area) have seen sensors placed in motor vehicles to monitor driving habits and to provide warnings to drivers in circumstances where they may be speeding or may brake too late, contributing to mitigating the risk of accident.

He cautions some policy holders are resistant to use of such technology, as they feel this represents an invasion of privacy, potentially providing insurers with an excuse not to pay claims.

Other pro-active examples of risk mitigation include insurers sending SMS messages to policy holders warning of the approach of damaging winds and hailstorms to assist damage prevention.

The equivalent on the life insurance side of the equation, according to Jackson, is the health and wellness message embraced more and more by all insurers around the world, all of which are designed to assist policy holders lead their best and healthiest lives – living longer and claiming less.

Jackson asserts, however, that from an actuarial viewpoint, there is presently little evidence to demonstrate a commensurate reduction in life insurance product claims as a result of the impact of life company health and wellness programs or that it leads to a dramatic improvement in the individual’s general health.

One area Jackson believes will have a significant impact on insurers and its policy holders/members is artificial intelligence – in areas such as claims analysis and knowledge of the policy holder. Again, however, this potential leap forward is accompanied by privacy concerns of the client.

Regional Differences

From a cultural perspective – as viewed through the eyes of an independent global observer – Jackson says he often associates Australia more with the United States than with New Zealand: “Similar vibe. Similar people. Similar ethos,” says Jackson, who adds that New Zealand is not such an aggressive shareholder country as Australia.

“In New Zealand, there is mutuality insurance especially in the agricultural and farming sectors,” says Jackson, noting some very powerful mutuals have served the New Zealand market for a very long time, particularly in the short-term insurance space.

“New Zealand is different. It’s more social. It’s more about knowing your label and knowing your customer. Knowing your insurance adviser. Culturally [New Zealand is] very different and very mutual friendly.”

He says PPS is looking to start up in New Zealand at some point because the culture there is “…very pro-mutuality.”

Jackson also stressed there’s a big difference between what the state provides in New Zealand and what the state provides in Australia:

“Generally you find that the less the state provides, the bigger the advice sector and the greater the opportunity for insurers.” This is the reason PPS decided not to enter the UK market, says Jackson, “…because the state provides so much.”

Adviser Panels

The type of adviser is also different in the mutual space, says Jackson: “They tend to be long-term oriented, very interested in building long-term relationships, [and] tending to serve the higher net worth end of the market because of the type of client you’re dealing with – the type of client who may well be on the books for 40 years.”

Jackson notes the referrals which the adviser receives from those higher net worth clients are often of high quality to the servicing adviser, meaning they may not need to prospect for more new business beyond their current book of clients.

PPS Mutual in Australia has a panel of relatively few advisers as the insurer prefers to individually select which advisers they determine should have access to their product range.

Values

Looking to the future, Jackson believes there has been a recent backlash on the excesses of capitalism and some of the huge profits being made by mega-wealthy individuals and organisations around the world – at the exclusion of values: “We see it with young professionals, who are more concerned about values and less concerned about money. In that context, the mutual ethos kind of resonates with them.”

Jackson says he often talks about mutuality as an alternative form of capitalism. “You’ve still got to make a profit and do well or you won’t survive. But it’s not avaricious.”

Jackson suggests that to understand the values of a company, consider the CEO’s performance contract: “In a shareholder company the contract will include the return on shareholder investment, growth in the value of new business and growth in assets, which are elements that will build money for shareholders. You would not see metrics such as improved customer service, paying more claims or speeding up claims payments. You won’t see any of those indicators in the shareholder company CEO performance contract.”

Jackson notes his own previous CEO contract had more than 50% unrelated to such indicators. Rather, it was all about customer value, improving the experience of members, improving the claims process, speeding up communications and improving member retention.

Looking at recent numbers, Jackson says the global market share of mutuals has increased in the last five years. “Premium growth over that period has been 37% for non-mutuals and 41% for mutuals. In US and Japan, the biggest insurance companies are mutuals.”

“I think the model resonates with people.”

More Mutuals in Australia?

The predominance of stepped premium in the Australian market is only one of the factors making it attractive to international insurers. Another factor, according to Jackson, is Australia’s GDP per capita, which he says ranks the highest of any of the world’s economically-significant countries: “Australia is the highest, with an average $US72,000 per person, coupled with one of the lowest unemployment rates in the western world, and years and years of no recessions,” notes Jackson.

He adds that, compared with countries such as the US, UK and Germany, “Australia is an incredibly successful country, and often, Australians don’t get it. It’s a hugely successful country with over one million professionals in the workplace, and this is an enormous percentage of the population compared with most other countries. By any measure, Australia is very successful, with real wages and historically low inflation. So, it’s a very desirable market.”

The Future

On a final note, and almost counter-intuitively, Jackson says he would welcome more mutual insurance company competition in the Australian market, because the more activity that occurs in the mutual space, the easier it becomes to send a message to consumers about the mutual offer. “When there’s no-one else in that space, you’re the sole organisation doing the communicating.”

Given his assessment of the fertile ground Australia offers to mutual insurance propositions, we will look with interest to any future developments in this area and remember Jackson’s insights when new mutual insurers open their doors in this country.