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Not So Simple

Recently someone said that life insurance was so simple anyone could buy it. I think that's an aspirational statement - many insurance products are simple enough to buy without advice, but I've just been reviewing a bank life product policy document, and it reveals some key differences with the cover available from most of the non-bank life companies. 

Most intermediary-sold products contain only one exclusion:

• suicide during the first 13 months.

It is that simple.

Bank insurance products often contain a raft of additional exclusions:

• War, declared or not
• HIV / AIDS
• Alcohol or drug abuse
• Involvement in an unlawful act - convicted or not

I don't know what counts as an undeclared war or not. Terror attacks are unusual, although I have friends who were in Bali when the bombs went off there, and I stood in Paddington station six weeks before the bombs went off there. We get no help from the bank policy document as to whether bad luck would have seen us caught out by these events.

I don't know why you would be covered if you caught one sexually transmitted disease and not another. I don't know why a Haemophiliac using contaminated blood products should have their claim declined. You can justly point out that HIV / AIDS is rare in New Zealand, so it shouldn't matter. But that cuts both ways: since it's so rare, why exclude it?

I don't know how many drinks you'd have to take for this bank to consider it abuse. Or whether the one time you took P would be it - and your family would be out of luck. Or whether you were unlucky enough to be slipped a mickey finn and now your life insurance doesn't pay out.

I don't know whether involvement in an unlawful act includes being 10kms an hour over the speed limit or perhaps its the one time you drove oblivious through a red light and got hit by a truck. You broke the law. It will show up in the police report. Will the bank pay?

There is a saying in the insurance business - it's about creating a certain financial outcome in an uncertain life. Since a policy which doesn't have all these exclusions can be had for the same money, I'd buy one of those in preference.

But the bank has a choice too: since getting rid of the exclusions doesn't seem to affect the price, why don't you ditch them?

Thankyou Matt McCarten

Matt McCarten's recent publicity (article in the NBR, by Matt Nippert) around his insurance policy has been helpful to the life insurance industry, and also to many consumers that will have insurance policies and may not be aware of their contents.This is a great public service. It may help many families with similar problems and more ordinary circumstances.

Insurance is so rarely in the mainstream media that I simply never look for it there - and so had to be told about the story by a journalist, David Chaplin. Although some writers and commentators are focused on the proposed use of the funds to pay off a debt to the IRD, and reminding readers how that debt was built up, it's the fact that Matt McCarten is a high profile individual combined with the fact he has in all other respects acted just like joe average.

He has a policy for a typical sum of money - in fact, almost the modal average for new life policies. He hadn't read it - I don't blame him, very few people read the documents, and I'm writing my blog this morning in preference to reading policy documents, they are hard to read. But as he thought about his debts and his terminal illness he thought he might be able to use it, which is a good idea. Of course, when the same idea forms in the head of the ordinary Joe he phones the insurance company. Then he discovers that they are quite prepared to pay out if there is a terminal illness.

That's what the industry is here for...and because he's in the media, lots of people have got to hear about it, which is good.

Incidentally, I felt that Emily Hanna, of Sovereign, handled it very well.

Why is medical cover so expensive in the US?

So why is medical cover so expensive in the US? There are certainly many reasons. You can point to legal claims. You can point to the simple fact that GDP per capita is higher. Another point is mandates.

Here in NZ we have a default setting to expect minimal health-care - it's the rationing. Only this morning the doctor was debating whether to get an MRI on my son's leg - he felt that it wasn't necessary. I agreed, but I wonder how much of that view is driven by a desire not to waste resources, which sometimes will lead to under-prescription. Usually we hear about the reverse in the US.

It isn't just about the presence of insurance leading GPs to take a defensive approach and order extra tests - mandates require insurers to cover procedures and drugs that they might not otherwise cover. Pregnancy is hotly debated - most people want pregnant women taken care of, but pregnancy is usually a choice and so it is legitimate to ask... why should I pay for that care? Then there are quitting smoking programmes, for example. Non-smokers might ask why they should pay for such programmes when they already don't smoke.

Of course, here in NZ non-smokers do the same, but we don't pretend it's a private medical insurance cost. Reasonable people can disagree about such things, but silly examples can be found that we can all take issue with: some mandates can include items as silly as baldness treatment. Once you start including all this malarkey it is easy to see how you can double our level of healthcare spending.

 

FNZ Continue to Shine

FNZ, who have offices in Wellington, and were started here in New Zealand, continue to win new business in the platform sector, by Natalie Holt, at Money Marketing.

Anyone who doubts the ability of New Zealand companies to operate at the leading edge of both technology and financial services should familiarise themselves with the story behind this story:

"FNZ had around £20bn of assets under administration in July, saying it was looking to increase that to £100bn by the end of 2013."

 

Product Rate Changes

AXA have put through a minor life rates change which takes effect today. Life pricing comparison subscribers will see their database updated by the end of the week.

TOWER and Sovereign medical rates both go through scheduled updates, TOWER's effective 1 April, and Sovereign, 1 March. Health pricing comparison subscribers will be contacted about the schedule for updating rates, but it is likely to be the week of the change.

TNP Professional Association

Well, this is interesting. TNP has decided to launch a professional association. Good for them! Their decision will raise issues and challenge the other professional associations to think about the value that they offer. I think the article by Jenny Ruth at goodreturns has touched on some of the issues already. For example:

How much should being a member cost? TNPPA is showing a definite price-based pitch. It is easy to decry any price-based offer, but after years of rising costs, advisers are entitled to wonder when someone will have the guts to say 'no, we can do this cheaper'.

Should a professional body provide continuing professional development? TNPPA states that it should - I'm not sure, personally I think that should come from the dealer group. But if you take this part of the offer with the others then you see that TNP is effectively trying to create an end-to-end compliance solution. Perhaps it is about business structure, and by biting into a chunk of the professional association part of the value chain it is possible to get more cost-recovery on the training.

Should a professional body focus on a category of supervision? TNPPA highlights the fact that most of its members are RFAs. RFAs often feel that people deliberately slight them in comparison to AFAs - yet many feel that they have made a pragmatic business decision and will deliver all the professionalism of an AFA (choosing, for example, to observe the Code) while avoiding much of the cost. What's more they are not only allowed to do that under the law, but that is the right categorisation under the law. There is a strong emotional appeal that comes with this focus.

 

 

 

Friday Fun - Merely Wealthy vs Influencers

This piece has something very useful and hilarious to say to all those who believe in vast conspiracies, by W.W. at The Economist.

The 10 Things Customers Should Know about Income Protection

Money Marketing UK have listed the top 10 list of things consumers should consider when purchasing Income Protection Insurance.

Click here to read the full article.

75,000 page views

This blog just passed 75,000 lifetime pageviews. I used to be pleased when I got five readers a day. Today I am surprised to see daily page views regularly between 40 and 70, especially as I'm focused mainly on insurers.

ETITO's Frampton is Right About Training

In this article by Niko Kloeten, at goodreturns, Michael Frampton expresses some exasperation at the focus on the minimum in terms of continuing education. Without a plan for continuing skills this is natural, if regrettable. Correctly he identifies the real issue being that if an adviser says he or she can operate in areas x,y, and z, then there is a requirement to operate in those areas with skill, care, and diligence. That means staying up with the play - law changes, product changes, and current practice.

Although I would prefer to put it this way: advisers can largely take control the amount of continuing education required. The broader the product set they offer the more work they will generally have to do to stay up to date. For example: insurance has a slower pace of legal and regulatory change than KiwiSaver does (which has arguably had more change in its few short years than insurance has ever had in New Zealand).

So here are the steps to building your continuing education plan:

1. Identify the areas in which you practice (look in your ABS) list them as colum headings for your table.
2. Give the following row names to your table: law change, regulation change, product change, market practice change, strategy change, systems changes
3. In each cell write down what the expected changes are this year.
4. Now you have a good schedule assign to each item what study, course, or work you need to do to get on top of the area.
5. Total it up and review - is there too much to do? Too little? Too costly? Some gaps in training you can't figure out?

You can consider reducing the list (changing your ABS to remove marginal services) or outsourcing some, or looking for new training and development options. You can now actively search for the right courses or specialists to help.

Underinsurance in the UK

Martin Werth and UK Money Marketing has this on the opportunity presented by underinsurance and the switch to unisex rates coming in the UK. Link.

Comparison Websites

It is a trend which isn't going to go away - internationally price comparison websites are providing information to inform the purchase process, but interestingly, they aren't driving a 'race to the bottom' in terms of price. Insurance Insight has this article by Nicky Burridge.

Paying Quality Commissions

There is a certain creeping sense of shame about commissions amongst some people who haven't sold things for a living, and so I was cheered when Naomi Ballantyne used the term 'quality commissions'.

Although I think there is plenty of room in the world for a variety of pricing models. I understand why I can pay $1 a can for Diet Coke at the supermarket and $5 if I buy it in a restaurant. So the difference between online and offline, or with-service and without can happily co-exist with advice-giving models.

But that's beside the point.

The point is that someone is prepared to take the view that commission is Okay. Even high commission is Okay, and that perhaps zero commission might not be better. Why? No money to pay for advice, and some clients like the product provider financing their advice costs.

Congratulations NZMBA and PAA

Congratulations to these two on forming their joint professional association.

Quotemonster 800

www.quotemonster.co.nz is continuing to gain users and usage - with the number passing 800 registered and at any moment of the day you can expect that there are about 20 people doing all-market quoting concurrently. We're getting feedback now that it's being embedded in some practice processes and we're constantly engaging with insurers around the premiums - for example AMP had a rate change on 1 February and AXA has a rate change effective 20 February.

Cavalcade of Risk 150

The current cavalcade of risk (number 150) is up at My Wealth Builder.

Complexity in Policy Wording

Obvious problems with most policy wordings:

• No guide is given to the reader - adviser or consumer - as to what is more important. Unit standards for the sale of insurance applying to financial advisers require them to talk about probability of outcomes and values as part of their planning. It would be helpful to everyone reading the policy document if a similar requirement applied to policy documents.
• Very long compound sentences - definitions of wordings which have been expanded to include lists of conditions. No one consciously decided that a 40 plus word sentence was okay, it is simply that no one has a checklist which includes any decent measure of readability. I reiterate - this isn't about making a document suitable for direct-to-consumer sales, this is about making it comprehensible to the claims team, the underwriter, and the average broker.
• Poor definitions sections - definitions sections are common, and although not a great tool, they are simply too useful to dispense with. However, there is a world of difference between a good definitions section and a poor one. Three good rules are:

a) don't redefine common words, if that isn't what you mean, then use a different term

b) don't nest definitions: each term should be defined on it's own, and defined terms used in the definition of another term are a sign you're doing it wrong

c) don't include calculations in your definitions. Calculations are central to the operation of a benefit. So a calculation of pre-disability income, for example, for an indemnity contract should be back up near the front of the document showing the operation of the main benefit

Straightforward, simple language, giving priority to what is most important is likely to serve you best.

How will that show up in the bottom line?

Fewer arguments over claims = lower processing costs and more happy customers. Meeting reasonable expectations of claim means setting reasonable explanations.

 

AFA Foundation Supports Victims of Christchurch Earthquakes

From the AFA Foundation:

"The AFA Foundation yesterday presented a $A10, 000 cheque to the New Zealand (NZ) Consul General, Martin Welsh, for the NZ Prime Minister’s Christchurch Earthquake Appeal at the AFA’s Sydney GenXt Road Show.

AFA foundation chair, Brian Boggs, who has just returned from Christchurch, said the money was raised by the AFA community in association with the Million Dollar Round Table (MDRT) Pacific Region.

"Christchurch is still a scene of devastation," Mr Boggs said. "The Christchurch Cathedral may have to be taken down entirely and a year on, the city continues to experience up to 10 after-shocks a day."

In thanking the AFA community for the donation, NZ Consul General Martin Welsh said 181 people lost their lives in the earthquakes, including several financial advisers, and tens of thousands of people are still suffering physically and emotionally.

"You really know who your friends are when the chips are down," he said. "Australia and Australians didn't need to be asked, they just came forward in their thousands to help."

Mr Welsh said the road to recovery for Christchurch will be a long one.

"As well as having a devastating effect on the people of New Zealand, the earthquakes have also had a devastating effect on our GDP - in fact the most dramatic effect a disaster has ever had on a country's GDP in history. The impact on GDP in Japan following the tsunamis was between 2 and 3 per cent. In New Zealand the impact is 9%.""

 

FMA Cracking Down on Adviser Advertising

Niko Kloeten at Goodreturns has this piece on the FMA crackdown on advisers using the terms RFA or AFA in their advertising. The comment by Sue Brown is telling:

"I cautioned against use of the initials by advisers to indicate they have a professional qualification.  You can't say 'Joe Bloggs, RFA' as if it's a professional qualification or means you're a member of a professional body," she said.

"It means you've made what are a fairly low level of requirements to get there, meaning you're not disentitled by a conviction or by any of the restrictions."

As befits a public official, Sue Brown is careful with her words. I have fewer restrictions. Allow me to illustrate. It's a bit like advertising yourself as

"Joe Bloggs, DL"    - for "Drivers Licence"

Another wag here in the office said registration is the FMA's internal designation for advisers that are "not yet caught".

The FMA relents in the case of AFAs, probably only because it has no choice given current conventions. As AFAs have actually passed a test, they can use the initials after their name, as it does indicate an academic qualification. But if I were an AFA I'd think twice before indulging, your designation is a bit like:

"Joseph Bloggs Esquire, License to drive a passenger transport vehicle"

If you are an RFA with advanced qualifications, and you are upset by the FMA's distinction then you can remind people the actual level of qualification that AFAs hold: It's equivalent to 40% of a diploma in management. Of course, it won't help you make any sales, or win friends for that matter.

On the other hand the IFA should write a quick note of thanks to the regulator. This underlines something that they have been saying for ages - professionalism and quality should be indicated by what advisers do over and above these requirements. We don't want consumers to unwittingly feel that registration or authorisation is anything more than a permission slip to offer advice in the respective categories, and as there is that risk, I feel that shunning the use of these letters is therefore entirely consistent with Code Standard One.

Unclaimed Benefits

A reinsurer has taken the step of going public about the unclaimed benefits attached to life policies. Not the main benefit (although they are unclaimed in some circumstances) but the extras such as bereavement support and financial planning.

"...RGA says consumers might be missing out on a set of benefits they are entitled to while they are claiming under a life policy following the death of their partner."

Check out the whole article.In UK Money Marketing By Paul Thomas.

Is it happening here?

Yes. Definitely. Insurers tell us this themselves. Benefits such as these, and also 'recovery' benefits in income protection, and options to increase or buy back life cover after specified period are frequently not exercised.

Of course remembering to claim them is simple: read the document and stick the dates in your diary.

But consumers are used to getting more help than that. In our industry that service role is taken on by advisers, and if you are an adviser and want to get referrals from existing clients, then what better way than reminding them about thousands of dollars worth of extra benefits.