“I think the way the industry is moving is that there’s becoming a wider recognition that insurers have a role to play and I think that will grow the capacity in the market and not take capacity from others,” said Lance Warner (pictured above), Assetinsure’s executive general manager of strategy and business development.
Warner was explaining to Insurance Business why the investment wing of his insurance company, Correlation Australia Holdings (CAH), recently funded a Sydney-based tech startup venture called Downsizer to the tune of nearly $4 million.
That venture involves Downsizer’s digital platform facilitating access to a bond provided by Deposit Power. That firm is already part of the same constellation of insurance-related companies as Sydney-headquartered Assetinsure.
According to Warner, this new type of surety bond offering, launched in March, aims to overcome the financial hassles and impediments that confront retirees who want to downsize.
“If you are a retiree and you’ve got a valuable property which is now too big for you and you’re looking at investing in a retirement village but you don’t have the cash to fund your deposit, you would approach Downsizer,” he said.
Downsizer would then partner with Deposit Power to issue the surety bond.
“This allows you to pay your deposit without actually drawing any cash out of your property and it allows you not to miss the opportunity,” said Warner.
According to a joint media release, the bond, “enables anyone to use the equity in their owned home to back a deposit bond and secure a brand-new dwelling without having to put down a cash deposit.”
“The ecosystem between the end user, which is the downsizer, and the developer - in terms of being able to advertise their properties and gain access to that retiree and downsizer market - and the process itself, it’s digital, it’s quick [and] it’s very simple to understand,” he said.
Warner said insurance brokers will have a role to play.
“I think that they will be integral to the offering in terms of the rollout of the of the business plan,” he said. “Ideally, it would be a digital interface with brokers at the right time.” He said the “whole ecosystem” involved in retirees downsizing “needs to be brought together.”
Warner described this type of bond issuing for downsizing retirees as “unique” in the market when other offerings in the space, for example current offerings from banks, are “not really fit for purpose.”
Although he added that he doesn’t anticipate it taking business from banks, he said that widespread adoption of bond issuing of this kind would help banks fee up investment capital for use in “other ways which are more capital efficient and [have] better returns.”
“If you look at the aging population both here and in the UK, banks are doing their best but there are certain areas that are not quite fulfilled from a product perspective,” he said.
He suggested the new offering could have resonance with governments struggling to find ways to deal with Australia’s housing crisis and availability of housing.
“It takes the pressure off you in terms of selling first and looking for a retirement destination, second,” he said. “It doesn’t have to be a retirement destination, it can be a smaller property, it can be something sold by a developer, but it just takes the pressure away from you as a retiree in terms of trying to generate cash, and remember, if you go to the bank, and you ask for a bank guarantee, generally, that’s got to be collateralized with cash in any event. So it’s quite different to a deposit downsizer bond where you’ll pay a premium and essentially the insurer will stand in your place if you don’t fulfill your obligations.”
Assetinsure is one of three insurance-related businesses that work together. Correlation is the investment arm, Lombard Insurance (part of Lombard insurance group (LIG)) and Assetinsure are insurance businesses.
“We have insurance licenses in the UK, Europe, South Africa and Australia,” said Warner. “Assetinsure is our license in Australia, Lombard is the license in South Africa.”
Warner said this global collection of “affiliated businesses” is “loosely coupled but tightly aligned.”
According to Investopedia, surety bonds are financial instruments that provide a line of credit to the principal so as to reassure the obligee that the principal will fulfill their side of a financial agreement.
What do you think of this new surety bond offering? Can insurance brokers play a role? Let us know below
