The mutual insurance market has been on the rise, with its popularity growing since the financial crisis of 2007/8, as policyholders retreated from stock-based insurers, according to Swiss Re’s sigma report.
In its sigma report, “Mutual insurance in the 21st century: back to the future”, the company said it had observed a permanent shift in insurance buying behaviour in a favour of mutuals over those listed on the stock exchange.
According to the report, a mutual structure also allowed for incentives to better align between customers and insurers and that mutuals tended to limit premium increments and accept more claims rather than “striving solely for profit maximisation”. This often meant a better deal for the customers.
Additionally, their value was boosted thanks to their ability to compete not only on price but also on the value-added services they offered to the clients.
The report stressed that the rapid rise of the digital technology could also be “boon for the mutual model” as it seemed like a natural fit for purpose.
However, the regulators and their new-risk regulatory capital standards put some mutuals, especially smaller ones with a narrow regional or business focus, at a competitive disadvantage even though the mutuals were generally well-capitalised.
Mutuals were recently enjoying a renewed period of popularity driven by the premium growth from 24 per cent share of the overall insurance market in 2007 to 26 per cent in 2014.
The International Cooperative and Mutual Insurance Federation (ICMIF) chief executive, Shaun Tarbuck, said: “Mutuals, now more than ever, play a significant role in the rapid levels of innovation and growth taking place within the global insurance industry. It is very welcome to see the new sigma report from Swiss Re reflect this”.
The ICMIF also contributed market intelligence to the Swiss Re report.
The latest entrant to the Australian life insurance market, PPS Mutual, has accredited 80 financial advisers to provide advice on its suite of insurance products with plans to accredit a ‘few hundred advisers’ over the next five years.
PPS Mutual, Chief Executive, Michael Pillemer said the 80 advisers were located in Sydney, Melbourne, Brisbane and Perth and had been chosen because they offered a strong client experience and work within a specialist market, with most coming from non-aligned licensees.
PPS Mutual first announced plans to offer life insurance products into the Australian market in February of this year, specialising in white collar professionals in the medical, commercial and legal, and industrial sectors.
“We have chosen a distribution strategy that has focused on accrediting advisers to use our products and we believe professionals need professional advice, so we will not be offering any direct distribution,” Pillemer said.
“The accredited advisers have been trained to understand the mutual model and how the profit sharing arrangements work for those insured, as well as the product design and have undertaken an exam at the end of that process to gain accreditation.”
Pillemer said the number of professionals covered by the targeted sectors was more than 500,000 and as such PPS Mutual was likely to add advisers aiming for a target of a “few hundred in the next five years”.
Advisers using PPS Mutual products, which include Income Protection, Life, Trauma and TPD, were able to charge fees or commissions for their insurance related advice, Pillemer stated, with the latter being offered at levels in line with the proposed Life Insurance Framework (LIF).
“The clients of the accredited advisers may have complex needs so we will offer remuneration that is appropriate for the adviser and the client and we set that at a time when it looked as if the LIF would be put in place,” Pillemer said.
Business Expenses, Blood Borne Disease and Child Insurance would also be offered alongside the four life insurance products, which have all been created from scratch in conjunction with Australian insurer NobleOak, South African group PPS SA and a large global reinsurer.
Pillemer said the insurance products were released via a soft launch last month and the group’s contemporary mutual model has continued to attract interest from financial advisers.
“The timing is right for this because there has been a complete lack of innovation in the Australian market with changes only taking place around pricing or some product innovation at the margins,” Pillemer said.
“Advisers are looking for long term alternatives and solutions for clients and the mutual model we offer is not subject to the vagaries of the market like the listed insurers who have external shareholders. Instead it offers an alignment of interest between the members of the mutual and the life insured as they are effectively the same person.”
In the rare absence of the AFR Weekend’s other back page column, The (flamboyant) Adventures of Joe Aston, here is a typical working week in the life of your humble Rooster.
This meandering trip through the lift wells and open floor plans of Sydney’s CBD is fuelled by mineral water and multiple flat white coffees and not champagne. Yes, life in the AFR chook yard is boring compared to Aston’s Adventure island with its fertile oasis called Rockpool Bar & Grill.
The Chook’s first CEO interview is with Ian Silk from the $100 billion industry fund, AustraliaSuper. During a phone chat, Silk sends a chilling warning that while the big super funds are getting bigger in Australia’s $1.2 trillion super sector the smaller funds are shrinking at a rapid rate.
Almost half of all super funds have net outflows. Even worse, one fifth of super funds have both negative cash flows and declining asset values.
That will ultimately spell disaster for the members trapped in these funds but don’t expect an end to the cultural issues (job saving strategies) that have stopped necessary super fund mergers from happening.
The next interview slot is a double bunger – the group CEO of PPS Insurance in South Africa, Mike Jackson and the CEO of the Australian arm Michael Pillemer.
The success of this enterprise is a reminder that profit sharing between life insurance policyholders is not only mutually beneficial but in high demand among professionals seeking bespoke coverage.
Of course, Australia once had several of the world’s largest mutual life companies, AMP Society and National Mutual Life. But AMP and NML were demutualised after a commission driven sales war flogging capital guaranteed insurance products that left them both with a mismatch of assets and liabilities.
Those wanting to see the legacy of the immense wealth and power of mutual life companies can look inside the marble lined walls of the old City Mutual Life Assurance Building in Sydney – otherwise known as Aston’s second home, Rockpool Bar & Grill.
Working lunch
A brisk working lunch at the Mint on Macquarie St with Rob Whitfield, who is NSW Treasury Secretary and former head of institutional banking at Westpac, provides a chance to catch up on Premier Mike Baird’s adoption of business principles in managing the public finances of NSW.
Whitfield has a staff of 550 in Treasury but his influence will soon by far wider when he joins the Public Service Commission Advisory Board which oversees 440,000 public servants.
Whitfield has big ideas about how to improve the management of the $73 billion NSW budget while improving services to taxpayers.
Tuesday’s highlight or should that be lowlight, was a conversation with Joe Hayes, from McGrathNicol, following the release of his administrator’s report into the collapse of electronics group Dick Smith. The Hayes analysis has the makings of a corporate finance thriller including a very messy ending with blood everywhere. The Hayes report to creditors owed $260 million is appropriately coloured black.
The abiding lesson from this collapse is not necessarily to avoid companies with Porsche 911-driving CEOs. It is to take notice of the short sellers and steer clear of strategies based on growth for growth’s sake.
Wednesday kicks off with an exclusive briefing from James Griffin at KPMG on the top 20 Twitter power list of Australian business leaders. Well done, to Telstra CEO Andy Penn, who is not hiding from the company’s chronic fixed line network problems.
It is a short walk across a foot bridge from KPMG’s new office in Barangaroo Tower 3 to Westpac’s HQ for coffee in the corner office of chief executive Brian Hartzer. It is fitting that Hartzer’s desk is overlooked by a striking painting from Arthur Boyd’s series on Ned Kelly, who robbed a Westpac (then Bank of NSW) branch in Jerilderie in 1879.
In the middle of Hartzer’s office is a white board with his detailed plans for making the bank “one of the world’s great service companies”. A key part of that strategy is implementing the service credo of the Ritz Carlton luxury hotels group.
Hartzer brought in specialists from the Ritz Carlton to teach senior managers at Westpac how to implement “the principles of empowerment and emotional connection to people and customers that underpin service leadership“.
One way this works is that bureaucratic rules are abandoned if two managers agree to do the right thing by a customer. It saves referring the decision upstairs for endorsement by a superior.
Turnaround situation
Friday’s working day starts with a background chat with Flexigroup chief executive and former rising star at Commonwealth Bank of Australia, Symon Brewis-Weston. He is in the middle of a difficult turnaround situation at a company that was once a market darling. He says at the moment he is making sure staff celebrate small victories.
Finally, there is a phone catch up with Jon Sutton, chief executive of Bank of Queensland who recently took his board of directors on a week long trip to Silicon Valley. They visited fintech start-ups, venture capitalists and established tech giants.
Sutton says the trip could result in BoQ partnering with a fintech that specialises in customer identification but he refuses to name the company for competitive reasons. He reckons the trip could shape BoQ’s future strategy.
Specialist financial services provider Professional Provident Society (PPS) South Africa has entered the Australian retail life/risk insurance sector, targeting doctors, lawyers and other select professionals.
The South African firm launched PPS Mutual, a new company aiming to reach more than 500,000 professionals from 13 fields including medicine, accounting, law and engineering.
PPS Mutual is seen to become the only retail life risk insurance mutual offering in Australia that is available to select professionals through financial advisers.
The new company has developed products relevant to the professional market such as income protection, life, total and permanent disability, and trauma insurances.
“We believe the timing is right for the re-emergence of a well-constructed mutual model within the highly competitive retail life risk insurance sector in Australia,” said Michael Pillemer, PPS Mutual CEO.
“We are confident that our approach will prove successful with professionals, with early indications from the advisory community showing strong support for our new endeavour,” Pillemer added.
Pillemer said PPS Mutual will be owned by its professional members who will share in the profits of the products that they buy.
PPS South Africa CEO Mike Jackson, the non-executive chairman of PPS Mutual, said their latest venture marks the company’s 75th anniversary this year and the geographic expansion of its successful business model to the graduate professional market.
Jackson said the decision to expand into Australia followed extensive market research.
“The study clearly showed a gap in the Australian market with regards to a specialised mutual dedicated to servicing the insurance needs of the growing graduate professional market in the region,” he said.
THE 75-year-old mutual company Professional Provident Society (PPS) has set up a business in Australia and will begin offering short-term insurance in SA in the next few days.
The move to Australia, if successful, is an opportunity for Professional Provident to earn Australian dollars that will be beneficial in an environment where the rand has been weakening.
“(In Australia) we are going to start out with our major product which put PPS on the map, which is income protection,” CEO Mike Jackson said.
Professional Provident was formed by eight dentists in 1941, two years after the Second World War had started. They offered financial protection to professionals such as dentists who due to sickness or injury lost out on income and were unable to practise.
In Australia, Professional Provident will target professionals such as doctors, dentists, lawyers and accountants, Mr Jackson said. “It’s a big market. There are nearly 500,000 professionals in Australia.”
The company is building the business in Australia from scratch after planning the venture for the last five years. It follows South African insurers such as OUTsurance in expanding to Australia.
It has hired Michael Pillemer, the former MD of Investec Private Advisers in Australia and a founder of Centric Wealth. It will be looking to offer life assurance in Australia.
Professional Provident Society, which has a presence in Namibia as well, also offers dread disease cover, business assurance, retirement and savings, and a medical aid scheme for professionals.
The company has now diversified into short-term insurance in SA and will start writing policies in the next few days.
Nazeer Hoosen, CEO of the short-term insurance business, said the group would introduce a full range of general insurance products and would partner with Santam, which would help with claims processing and the like.
The short-term insurance business in SA would be 49% owned by Santam, Mr Jackson added.
South African insurance giant PPS is wading into Australia’s $7.5 billion retail life risk market, wooing professionals such as doctors and engineers onto its books.
PPS Mutual, which will adopt its parent company’s members-focused business model, will sell life insurance products such as trauma, death and income protection cover to more than 500,000 Australian workers across 13 professions.
These professionals include doctors, accountants, lawyers and engineers. The company, which will sell its products through financial advisers, will roll out its services over the next few weeks.
Michael Pillemer, the former chief executive and founder of listed insurer CentricWealth, is the Australian boss of PPS Mutual.
“We think the timing is perfect because a lot of the vertically integrated organisations (owned by banks) are struggling with having made multiple acquisitions over the last decade,” Mr Pillemer toldFairfax Media.
“They have legacy systems, we’ll start with a clean slate, and there’s a complete lack of innovation in the market,” he sad.
The company is in talks with more than 50 non-bank aligned financial advisers to sell its products. Mr Pillemer has spoken with bosses of advice groups including Ray Miles, executive chairman of Fortnum Financial Group, Glenn Kerr, director of Complete Risk Analysis, Aaron Zelman, managing director of Medibroker, Ron Geffin, director of Core Private Wealth and James McFarland, director of insurance at Stanford Brown.
The company’s risk will be underwritten by reinsurance behemoth Swiss Re and NobleOak Life, which is regulated by the Australian Prudential Regulation Authority.
The business model will also see the group’s profits – over the long term – return to members who stick with the company. Its South African counterpart returned $2.2 billion back to its members in the past 10 years.
“As long as you retain your membership and one policy with the company, then after a certain period of time, you get access to those profits,” Mr Pillemer said.
Turbulence in sector
PPS is entering the market at a turbulent time in the life industry, whose performance in recent years has been hampered by low investment returns, a surge in white-collar claims and lawyers encouraging clients to sue insurers for payouts.
The industry is also battling high lapse rates, which happens when customers opt not to renew their policies as household budgets tighten. Meanwhile, the industry is also adjusting to a barrage of regulatory change, including adviser-remuneration structures from commissions to more fee-for-service models.
The top eight life insurers including players such as CommInsure and MLC control more than 90 per cent market share of the retail life risk sector. Some life company owners, such as National Australia Bank, are jumping ship from the industry and selling their life businesses.
Despite the challenges, Mr Pillemer remains optimistic about the insurer’s entry into the local market.
The insurer has appointed PPS South Africa’s chief executive, Mike Jackson, as non-executive chairman of PPS Mutual in Australia.
“We believe the timing is right for the re-emergence of a well-constructed mutual model within the highly competitive retail life risk insurance sector in Australia,” Mr Pillemer said.
Clarification: The story “South African insurer makes Australian play” published on February 18 said Swiss Re and NobleOak Life were underwriters of PPS Mutual’s risk. This is incorrect. Swiss Re is reinsurance partner to PPS Mutual.
South African insurer, Professional Provident Society (PPS), will join the Australian life/risk insurance sector this year, targeting accountants, engineers and other professionals.
The firm is partnering wth Australian Prudential Regulation Authority (APRA) regulated insurer NobleOak Life Limited, to launch the country’s only retail life risk insurance mutual offering available to select professionals, which will be available through financial advisers, the firm’s Australian chief executive said.
“We are proud today to announce the formation of PPS Mutual, an organisation that will be owned by its members and founded on the ethos of mutuality where members share in the profits of the insurance that they buy,” he said.
“We believe the timing is right for the re-emergence of a well-constructed mutual model within the highly competitive retail life risk insurance sector in Australia. We are confident that our approach will prove successful with professionals, with early indications from the advisory community showing strong support for our new endeavour.
“We are very pleased to be partnering with PPS (SA) on its first venture into the Australian market, APRA regulated insurer NobleOak Life Limited, and one of the world’s largest reinsurers.”
PPS Mutual announced today that it will soon be opening its doors as a historic entrant to Australia’s $7.5 billion* retail life risk insurance sector.
Targeting a market of over 500,000 select professionals**, PPS Mutual launches with the support of South Africa’s largest mutual company, Professional Provident Society SA, known as PPS (SA).
PPS (SA) is the largest multidisciplinary group of professionals globally, and a long-established and successful South African financial services group.
PPS Mutual will become Australia’s only retail life risk insurance mutual offering available to select professionals through financial advisers. The organisation is headed by Michael Pillemer, CEO.
Mr Pillemer said: “We are proud today to announce the formation of PPS Mutual, an organisation that will be owned by its Members and founded on the ethos of mutuality where Members share in the profits of the insurance that they buy.
“We believe the timing is right for the re-emergence of a well-constructed mutual model within the highly competitive retail life risk insurance sector in Australia. We are confident that our approach will prove successful with professionals, with early indications from the advisory community showing strong support for our new endeavour.
“We are very pleased to be partnering with PPS (SA) on its first venture into the Australian market, APRA regulated insurer NobleOak Life Limited, and one of the world’s largest reinsurers.”
PPS (SA) CEO Mike Jackson is non-executive chairman of PPS Mutual. Mr Jackson is a distinguished global insurance executive, and serves on the Board of the International Cooperative and Mutual Insurance Federation.
PPS Mutual has developed products relevant to the professional market such as Income Protection, Life, Total and Permanent Disability, and Trauma insurances.
*Source: Rice Warner, based on annual premium income
**Eligible Members will include tertiary-educated Australians practising within one of 13 select professions, including medicine, accounting, law and engineering.
South African insurance company Professional Provident Society SA is set to enter Australia’s retail life insurance sector with a new business division, which will be headed by former Centric Wealth CEO Michael Pillemer.
According to a statement issued this morning, the new insurance business – to be called PPS Mutual – will look to target professionals such as doctors, lawyers, accountants and engineers through the advice channel.
“We are proud today to announce the formation of PPS Mutual, an organisation that will be owned by its members and founded on the ethos of mutuality where members share in the profits of the insurance that they buy,” Mr Pillemer said.
“We believe the timing is right for the re-emergence of a well-constructed mutual model within the highly competitive retail life risk insurance sector in Australia.”
He added: “We are very pleased to be partnering with PPS SA on its first venture into the Australian market, APRA-regulated insurer NobleOak Life Limited, and one of the world’s largest reinsurers.”
PPS Mutual said it will provide income protection, life insurance, TPD and trauma cover to professionals through the advice channel.
