Clive Levinthal, chief executive officer at Experien Insurance Services said that the industry has not adapted insurance products to fit the current customer and this is affecting profitability.
“The profits are not strong and the required returns on capital are not really being achieved by many insurers,” Mr Levinthal told the Institute of Actuaries conference yesterday.
Some of this stems from the declining profitability of current products, which is particularly acute amongst the traditional insurers.
“Legacy products were written on very high profit margins in the 80s and 90s ... And the profit margins on that older business is usually double,” Mr Levinthal pointed out.
He added, "what you are seeing as those older books are running off, is that the new business is not replacing those profits streams at the same equivalent margins”.
The industry does have to take some blame in confusing consumers with a lack of product standardisation, he said.
“If you have ever looked at the ranges of premium rates ... the rates can be up to 40 per cent different in many cases. And that is where I see the inefficiencies in the market taking place,” Mr Levinthal said.
Insurance is often sold through traditional older distribution channels such as TV and telemarketing and if insurers are to be profitable, they also need to improve their relationship with their customers.
“In the direct market there is very little class competitiveness or product competitiveness; the success of direct insurance comes down to the distribution strategy,” Mr Levinthal stated.
The industry needs to implement technological changes too.
“In terms of technology, the industry has been in the dark ages. Only recently have we seen some technological development ... [For instance] you can’t go online and change your address, you can’t go online and change your credit card details,” Mr Levinthal said.
This technological adoption can also help to control costs.
“In terms of high claims rates ... I see very little investments in the Australian markets in terms of claims management systems, claims technology,” Mr Levinthal said.
