Damien Mu makes what may seem, at first pass, a somewhat startling admission for a senior insurance executive: he’s not sure exactly what’s covered by his own various personal insurance policies.
But the CEO of AIA — the second-largest life insurer by market share in Australia — points out this is the case for everyone, and it’s a problem that goes to the heart of the challenges for insurance companies and their customers.
Who really knows the fine detail of what they’re covered for in different situations?
A further problem, of course, is gaps in coverage are often only discovered when it’s time to make a claim, which by nature can be at stressful points in people’s lives.
“Here I am, I’m leading life insurance and health insurance part of a major international provider,” Mu told Business Insider in a recent interview. “Do you know what, I still ask: Do I know exactly what I’m covered for in my general insurance, on my house and contents? No, don’t. Now will I when I need to make a claim? Yes. Could I be surprised? Yes.”
It’s almost three years since Mu was appointed CEO at the Australian operation of AIA, an Asian insurance giant that operates in 18 countries in the region. Still in his early 40s, he is keen to simplify insurance for people and wants to get people more engaged with their levels of cover.
“I think we’ve got to work out how do we make it simple for people to understand so that they can not get caught in a 25, 30, 40-page product disclosure statement,” he said, but rather have it explained to them in simple terms.
Can I get an amen?
To most people, insurance sits far down the list of industries being upended by the digital disruption seen in categories like, say, retail, media, or banking.
But AI, GPS tracking, health monitoring, and other digital tools are changing insurance, too. It just hasn’t generated anything like the volume of headlines or spectacular market dislocations comparable to an Amazon in retail or a Snapchat in media – yet.
Mu sees it as an opportunity to both lift people’s interest in their cover and put downwards pressure on prices. AIA, which APRA reports as having taken $1.3 billion in policy revenue in the year to November 2016 and had total assets of $4.5 billion, is among a number of insurers using apps to incentivise and track healthy activity such as trips to the gym and exercise, which in turn can help them save money.
Mu shared with Business Insider some of the stats from AIA’s Vitality program, which launched in 2014 and features a lifestyle tracking app: over 32 bilion steps have been tracked; customers have recorded more than 65,000 gym visits (which can offer customers cash rewards); and a scheme which allows people to get 50% cash back on flights booked through the Qantas website has led to more than $1.5 million being handed back to premium holders. Subscribers also get a discount on their insurance premiums of at least 12% simply by signing up.
Mu said this has meant AIA has “gone from having a once a year relationship with our customers to on average as 20 times a month.”
The digitisation of insurance as a product has two key benefits, Mu said. It helps weed out inefficiency and simplifies products, Mu said, but “the ultimate way is what were really excited about is by helping to increase health outcomes so that people don’t need to claim”.
He adds: “Efficiency in digital can help reduce that expense to get the product to people. But then actually the real way is how do we help prevent the need for the insurance, because ultimately the biggest cost of premiums will be claims.”
This will be welcome news to anyone thinking about balancing their household budgets, especially with the costs of another essential – energy – likely to rise for most people this year. At the same time, it’s a stark reminder of the powerful overall disinflationary impact of digital disruptions sweeping through the economy sector by sector.
While this is all happening, consumer demands for more transparency and enhanced ability to compare products in market are forcing insurers to re-think their offerings to Australians, most of whom are covered through default life insurance protection that comes to them via their superannuation program.
Default insurance programs used by the superannuation industry are under increasing scrutiny from politicians and regulators. There’s currently a federal parliamentary inquiry underway into the life insurance industry that is due to report by the end of October. And last month, a key finding of an inquiry by corporate regulator ASIC was that there was “a lack of adequate upfront and ongoing disclosure to members about insurance cover” and warned of the “use of inappropriate defaults” when transferring people between different funds.
The problem comes down to super funds using blunt tools to assign people into various levels of insurance cover, with the result sometimes being people retirement savings are being shaved more than is needed – something Mu wants to see addressed.
“There’s a constant battle around balancing the appropriate level of cover on default basis with the cost of that coming out of people’s superannuation accounts. So that’s the challenge,” Mu said. “How do you get that right? And maybe, some of the default levels of cover have gone a little bit too high. And what we need to do is now say, we’ve got done a great job to get cover to people, but how do we now look back and say, ‘Okay, well, how do we make sure that balance is right?’”
A simple example Mu provides is someone having levels of cover for a young person with income protection sufficient to cover mortgage repayments – but where the person doesn’t yet own a house.
“What we’ve found through our research is that young people do need cover,” Mu said. “But it’s what type of cover and making sure that they’re getting relevant coverage. So for example, at a younger age, having income protection is really important. Because you might not have a lot of debt, but the most important asset you have is the ability to work and earn a wage.”
On the other hand, “having large sums insured for a total and permanent disablement may be unnecessary, because you don’t have the house yet or you don’t have the levels of debt that would need that.”
Again, Mu says what’s critical is finding ways to have people thinking more carefully about their levels of cover.
“What we need to do is actually engage people – and that’s the big issue – how do we start to engage people in Australia to look at the importance of their insurance, so that they are making the decision to take the appropriate level of cover,” Mu said.
“If we can deliver a better, more valuable cost-effective proposition then they’re going want to take up their insurance, and they’re going to want to keep their insurance. And that’s good for our industry. And if they engage, even better because we can help them on their health journey which ultimately may improve the outcome for their need to claim.”