Back to business: The return of Peter Yates

Businessman Peter Yates has a new job. Photograph by Arsineh Houspian

Businessman Peter Yates has a new job. Next week, he will be announced as chairman of AIA Australia, the life insurer that bought CommInsure from Commonwealth Bank.

The former head of Kerry Packer’s PBL and Macquarie banker intends to reinvent the battered life insurance sector in Australia and to make AIA a household name.

Aside from those watching Australian Ninja Warrior (and we will come back to that), AIA Australia is not well known here. Its owner is huge. The Hong Kong-based AIA Group is the largest listed company on the Hong Kong stock exchange and the largest life insurer and largest health insurer in Asia, covering 19 countries.

Yates has also been keeping a low profile. He spent the past ­decade working in private wealth and with not-for-profits: helping to restructure Myer family Investments as deputy chairman; as a director of Linfox and high-net-wealth adviser Mutual Trust; and as chairman of the Royal Children’s Hospital Foundation in Melbourne.

The current AIA Australia chair is Theresa Gattung, who in the late 90s ran Telecom New Zealand. At Macquarie Bank, Yates had advised her on the acquisition of telco AAPT. In 2010, she brought him onto the AIA board. “She took on the gig of chairman of this tiny life insurance company in Australia called AIA and she called me up,” says Yates. “When Theresa and I started, we had $200m of revenue and were number eight in the market. And here we are today with close to $3.1bn of revenue and we’re number two.”

It was the law of large numbers that attracted Yates to AIA. In the early 90s at Macquarie, he led the team that helped Crown win the Melbourne casino licence and restructured the Victorian Racing Industry that later produced Tabcorp.

“I used to get a few laughs at PBL when I’d describe gaming and life insurance as quite similar industries,” he says. “The difference is with gaming the probability curve is extremely tight. If you don’t have an even distribution then you know that somebody is cheating. In life insurance your probability distribution has a long tail because you’re not quite sure what level of illness is actually out there.”

He was also intrigued, he says, about the social role life insurance plays in other countries and why it was not playing that role in Australia. “I couldn’t quite understand why Australia had so unsuccessfully denuded itself of a critical part of the financial services industry that existed in the rest of the world,” Yates says.

Around the world, savings and insurance typically go together. Yates says it was the growth of Australian super, which 25 years ago threatened the big banks’ access to Australian savings, that changed everything. Bank CEOs pushed into super and then wealth management and life insurance.

Five years ago, as the threat of a royal commission loomed, Gattung and Yates saw the writing on the wall. “We went to Hong Kong and said ‘the Australian banks are going to have to sell their life insurance businesses. This will be the greatest opportunity to have to make a scaled business in Australia and we should get ready for it’. And that’s what we did.”

At $3.8bn, CBA’s Australian and New Zealand life insurance businesses of CommInsure and Sovereign were the largest acquisition in AIA’s 100-year history.

The daunting task Yates has set for AIA Australia is to restore the trust deficit and reinvent an entire sector under new management, from products to distribution.

The royal commission turned life insurance into a burning platform. Distribution networks broke after a barrage of criticism. AIA Australia CEO Damien Mu says the bancassurance model is down by as much as half; 20 per cent of ­financial advisers have left because of new compliance standards; direct outbound calling to customers is down by about 45 per cent; and APRA has put the heat on the industry to lift its game on both the value and sustainability of retail income protection.

The cost for providing life insurance and advice is too expensive for the majority of Australians. Swiss Re data suggests a gap of $2 trillion-$3 trillion in underinsurance. That leaves the government picking up the tab, says Yates. “It’s the same problem of when a bushfire goes through and they discover that nobody has house insurance,” he says. “At the end of the day the government is the reinsurer of the failure to have sufficient life insurance activated by Australians.”

AIA Australia’s solution is a radical re-pitch of life insurance as part of a much broader and affordable relationship around health and wellbeing. “We can no longer have this situation where Australians are not having an engagement with their insurer and that it’s outsourced to just a distribution partner,” Mu says.

Underpinning the new strategy is AIA Vitality and behavioural economics. Vitality began in South Africa as a scientific wellness program and is now armed with 35 years of data from interactive customers. AIA Group bought the rights to the product and launched it, first in Singapore and Australia.

AIA Vitality offers to educate and improve customer health through rewards for better lifestyle (less alcohol, more sleep, exercise and better food). Rewards range from lower premiums to flights and cheap gym memberships. “We’ve gone from having a relationship with customers once a year to on average 20 times a month,” says Mu.

What is different, argues Yates, is that AIA is not targeting a pool of people who are already healthier. “We want to find everybody to come into our pool and then change their behaviours,” Yates says. “It is not selecting on the way in, it’s helping all of our customers become healthier.”

Vitality fits perfectly with another of Yates’s passions: shared value. This is the idea of using business to solve social issues profitably. Yates chairs the Shared Value Project in Australia. “The shared value in AIA is that we are solving a social problem by encouraging Australians to improve personal behaviours that account for 90 per cent of health issues through Vitality,” he says. “And if we can do that then we end up with a more profitable business and a competitive advantage.”

It won’t be plain sailing. Life insurance remains complex and regulators and politicians remain sceptical. To simplify product and engagement, Yates and Mu needed digital capability. Comm­Insure’s superior capability as part of CBA sealed the deal.

Yates’s acknowledged influence in the corridors of power has also been important in lobbying for the sector, which now has a life code. But he is disappointed at the government’s MySuper legislation. Life insurers lobbied for the banning of multiple super accounts, but he is disappointed with the government removing compulsory life insurance from people under 25 with low superannuation balances.

“I spent a fair bit of time in Canberra with politicians and I said ‘can you describe to me what a 25-year-old looks like?’” he says. “And you have all the advisers with all their careful beards and manicured looks and they are all 25 and they have been to university.

“And I said, ‘the average 25-year-old has been working for six years and they have 0.6 kids. You are going to deny a very large group of people access to life insurance’.”

And 25 per cent of those claims, Yates says, are not for cancer but mental health. “Those under-25s have been wiped out from access to an incredibly inexpensive product for the wrong reason.”

The rise in mental health claims, now the third-largest, in a short space of time is a serious work in progress for the sector. Mu says: “If one in two Australians is going to have a mental health issue in their life, then we have got to do something to help try to prevent this earlier and, if they do have one, help them manage through that and recover quickly.”

AIA Australia’s CommInsure acquisition and success with Vitality’s launch has turned it from minnow to bright star within AIA Group. And among the group’s 19 Asian countries is China, where it is growing fast. Yates sees nothing of the Australia-China tensions in the business, nor does he seem concerned with the politics of Hong Kong.

“Hong Kong is a very sophisticated stockmarket,” he says. “The fact that AIA is the largest listed life insurance company in the world reflects the strong governance and liquidity of the Hong Kong stockmarkets.”

In Asia, AIA is a household name, but not so in Australia. That will change, says Yates. The Hawthorn tragic has brought AIA Australia sponsorship dollars to several AFL clubs, which he sees as a perfect fit for a life, health and community brand. And as the former PBL chief, it is no surprise he has picked a ratings winner for advertising on free-to-air television (not easy these days).

“Australian Ninja Warrior is a success because it’s the right timeslot, it is information that’s being provided in that moment, and it is exciting to watch,” Yates says.

“AIA Vitality is right in the middle of Australian Ninja Warrior. We are one of the major sponsors because it meets our criteria. It is that time of day when people are relaxing but thinking and it’s associated with health.”

What Yates clearly doesn’t miss is the life of a public listed company CEO. “Sitting on the board of Linfox, we focus entirely on strategy and on business. At AIA Australia obviously compliance is huge but the board is focused entirely on strategy. That is the challenge for the public listed sector and I know from my public listed colleagues, they will share with you that there is not enough time for strategy. They have spent too much time distracted by the issue of managing the public shareholder.”