Steadfast CEO Robert Kelly shared his “warts and all” take on the insurance industry with AILA conference delegates.

And the one constant was change. “The landscape is constantly changing. I don’t know what the industry will be like in 10 years’ time,” he said.

Independent brokers had “morphed” from the era of tied agents, which followed insurers’ realisations they could no longer afford offices in every city, suburb or town. Federal legislative change, with first the Insurance Agents & Brokers (A&B) Act and then the Insurance Reform Act, created a “mish-mash and it’s got quite complicated”.

The concept of “clusidators” – a term Mr Kelly admits to developing late one night during discussions on the Steadfast float – defines brokers that cluster together and consolidate.

Steadfast and Austbrokers have taken the concept a step further by listing on the ASX. That gave brokers succession planning opportunities. “Previously people were selling [their brokerages] because they wanted to realise the capital value. Now they can still run the company, get some capital out, and have someone friendly take over the business when they want to get out,” Mr Kelly said.

The development of authorised representatives enabled AFS licensees to permit others to operate under their licences. “It’s renting the licence and it’s been very successful. About $1 billion of GWP goes through the [authorised representatives] network.”

Mr Kelly said one reason the industry was in constant evolution was because “smart-arse insurers are finding poxy ways to blame brokers”.

On legislative change, Mr Kelly said the A&B Act had cleaned up the general insurance industry. But he was not an advocate of the Future of Financial Advice changes which were being implemented to resolve problems created by “ill-informed people [were] selling ill-informed products to ill-informed consumers”.

Brokers were being caught by a Bill that aimed to prevent bad practices among financial planners. “A broad sweep means a lot of dust everywhere,” he said.

On litigation, Mr Kelly would like to see “the 90% of cases that get settled behind closed doors made public”. If you could lift the veil and explain the reasoning behind settlement decisions, “life would be a lot easier”.

Technology ruled how information was obtained and transferred between parties. But brokers were hampered by insurers’ traditional information gathering. For example, some information they sought had no bearing on risk rating, but brokers were still required to provide it.

Commoditisation – “price with no advice” – had a big impact on brokers. “You can buy insurance at the supermarket and you love it because you think you are saving money,” he said. “We can’t participate in the commoditised part of the market that doesn’t want advice.”

Ill-informed advice from consumer advocates, particularly after disasters when they often told consumers “insurers have screwed you”, impacted on brokers.

Change drivers for brokers included the direct versus the intermediated market. Mr Kelly praised Allianz and IAG for “talking about what they do not what it costs”.

Outsourcing and offshoring was inevitable as insurers sought to lower production costs. The same job could be performed at 20% of the cost in Manila, the Philippines, using “intelligent, switched-on people” who still enjoyed a good standard of living despite earning lower wages than in Australia. He warned technology was taking over lots of jobs.

On actuaries versus balance sheets, Mr Kelly queried whether some insurers still used actuaries. “I see some crazy prices.”

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