David Whyte writes on the FAA/ FSP review this time focusing on the subject of remuneration, and when conflicts of interest arise and when they do not. I will not quote pieces but instead suggest you pop on over to this link and take a look.
The New Zealand Herald is an enthusiastic supporter of churn declaring "Power to the People as Kiwis Profit from Switching Providers" only this example is, of course, power companies. Later they trumpet a switching rate of 20% per year in Auckland.
Let me stress that I am not equally happy with people switching insurance like they switch power: there are some significant structural differences between switching insurers, and switching power provider, of course. With power, the product is, frankly, as close to identical as it gets. With insurance it isn't. You cannot accidentally lose some coverage by switching power companies. The product is rarely so complex that you need advice. Insurance pools are such that customers that cannot switch could be trapped in a pool experiencing a 'death spiral' as the better risks leave the pool and prices must be repeatedly put up, encouraging more of the remaining people to leave.
What is important is that we recognise that consumers may not be aware of these differences. Many consumers think that switching is an unalloyed good - merely the way they get better deals and better products. This is a significant environmental head-wind for the industry.
Six biggest mistakes Kiwis make while buying life insurance. A great article by Diana Clement, in the New Zealand Herald. Of course, I'm a bit biased, because it quotes me, and also a nice reference to Quality Product Research.
A couple of context comments: these articles are hard, because you have so little space. The challenge is to say something succinctly which communicates a broader, more complex, idea. Which is a long way of saying that the calculation of insurance required is obviously a bit more complicated than the rough guide I highlighted in the article. It is also about more than just life and income protection insurance. But given the readership it was important to start where they are, and bring them along a bit, rather than shout at them from a great distance.
Advisers represent less than half of the insurance market. On Goodreturns, By Susan Edmunds. Important because it cover the estimates of market share by channel that we make quarterly. It is always nice to get quoted but I am worried that you might interpret this article about channel share as a vote in favour of 'less advice' and therefore 'less advisers'. It isn't. Obviously I am a fan of advice, and advisers. I also think you should be able to buy direct, and feel that these markets are quite different. It touches on the difficult question of accessibility and the debate about commission restriction which was raised in the MBIE FAA / FSP review paper. It is a lot more complicated than a couple of brief comments quoted in the article suggest.
Alongside this I would like to relate my experience from Friday: I had a working lunch with a group of about a dozen advisers talking about how to shift their businesses to a more professional fee-based model. The kind of future they envisage gives them a lot more freedom to focus on the advice part of the process, rather than the sale. But they all worried about accessibility issues.
There are concerns that level commissions common in the current Australian life industry could also be cut as a part of the proposed Life Insurance Framework scheme. AFA COO Phil Anderson is quoted as saying that he wants to hold life insurers to their commitments on level commissions. He said:
“Any move to reduce the rate of level commission payments has nothing to do with the quality of financial advice,” he said, adding, “The AFA will strongly resist any concerted actions by the life insurers to collectively set a cap on the rate of level commissions.”
Peter Kroon blames not having an urgent booking for the acceleration of his skin cancer. His story on Seven Sharp can be viewed here. After an administration error Peter waited months for a small operation which has now cost him his right eye.
This highlights an issue around utilisation of the health service which has long vexed public policy watchers: almost every government service relies on the user of the service being quite active and looking out for their own interests, partly because of mistakes like this one, and partly because government departments rarely see themselves as needing to 'market' their services in quite the range of inventive ways that private sector businesses pushily trumpet their wares.
HFANZ's recent media release has the latest June 2015 health insurance statistics. The key points to note are a rise in lives covered (see chart below), particularly in the 25-35 and over-65 age groups, and that the total amount of claims paid is again over the $1 billion mark for the year.
Goodreturns has this article. This is such a consistent piece of feedback on the FAA review that I might dare to even call it a consensus: many advisers, adviser associations, consumer groups, life insurers, and others agree that whatever the other arrangements if a person is providing the same type of advice on the same product then they should follow the same rules.
The vision of sitting with a client and collaboratively working on an insurance solution for transferring risk is driving advisers to bring tablet computers into their business processes. Insurancenews.com.au reports that 37% of advisers use tablets and a further 41% want to. Link.
We have also seen that among the 'power users' of quotemonster - who have been pushing us in a similar direction. Come along to the new Quotemonster roadshow to find out how we are optimising quotemonster.co.nz for tablets.
This article in the New Zealand Herald suggests that you might try to have an austere August (by Richard Meadows). This is the financial equivalent of a 'dry July'. It reminded me of this Canadian student who is going a whole year with a strict 'nothing but essentials' shopping regimen. You can learn about her techniques at this link. And the skinny Daddy of the frugality movement, Mr Money Mustache.
Some people choose to believe that radical personal austerity simply isn't possible. I have had one financial adviser tell me that they saw an item on the news scorning claims by Mr Money Mustache about his spending. Of course, financial austerity isn't for everyone, but don't knock it until you have at least considered it. There is good, credible, evidence that you can live a simpler life if you want to.
Take this as just one clue: in the NZ Herald article it suggests looking at your 'financial pipes' to check if there are any leaks. One of the items listed was paying for Television... our austerity bloggers would cull all pay TV services immediately. In the time saved you can tackle all the home insulation tasks that need doing in order to give your electricity bill a haircut.
Zurich Life recently completed a survey of 207 financial advisers to assess how they are responding to the new Australian life insurance framework, a scheme to reduce commissions and change other aspects of advice-giving in the risk advice sector in order to reduce conflicts of interest. Key highlights from the research are as follows:
"Many advisers see room for improvement via efficiency
37 per cent will respond to the new framework by increasing their focus on efficiency
55 per cent indicated a more flexible, less onerous compliance regime was critical
A further 33.1 per cent indicated that automation and technology would underpin efforts to adapt to the evolving advice landscape
Many advisers are re-thinking their value proposition and business model:
23 per cent seeking to specialise in market segments with higher value clients
26 per cent indicating they would focus on more holistic (rather than risk specific) financial advice"
You can read the full release from Zurich at this link.
As providers of adviser technology we are encouraged by the focus on technology and efficiency. Everyone concerned about underinsurance should be worried by the 26% who indicate that they would focus on broader financial advice - rather than risk-specific advice.
Third-party Financial Advisers are probably less than 50% of the sales of life products. Although there is no industry standard approach to defining channels and sharing sales data by channel a reasonable model can be constructed using existing industry data.
The approach starts with deducting business from the total for companies which deal with no third-party advisers, such as BNZ Life, CIGNA, and similar.
Then you deduct the share of 'bank' business from OnePath and Sovereign business. Until recently the estimate could only be based on vague statements made by each company or estimates by other parties. However, recently ANZ published the data in a briefing for share analysts, which helped to make the model much more accurate.
At this point the model already suggests that bank business is about 40% of all new life insurance sales and direct is about 10%. Not all the remaining business can be sold by third-party advisers: these companies also have institutional business divisions. These are deals to distribute insurance through companies such as The Warehouse. Although there is too little data on which to make a serious estimate it is plainly greater than nothing - these divisions are long-running features of several insurers' operations. Therefore third-party adviser business must account for less than half of all new business.
Financial abuse of the elderly is common. It can happen in many ways. We tend to think of a wily scammer coming to the front door or great-granny's inability to comprehend new technology, but sadly most elder financial abuse is from a family member. More details are available at this link.
Financial Advisers can play an important role in helping to prevent this problem. You can write about it in your newsletters and blogs. You can tell younger clients that are money-savvy and wish to help out their elderly parents and grand-parents how to protect them. A couple of really good habits older folk can get into are these, whenever faced with any financial proposition, demand, salesperson, say:
"Thank you for telling me that. I always check these things out with [name of trusted friend] or my financial adviser - that always takes a few days - and they usually tell me I not to do it. Sorry."