Hat tip to Rob Dowler for referring me to this article. The article starts by simply comparing average account balances in KiwiSaver vs average balances in the Australian compulsory retirement savings scheme, noting nine times more in the Australian scheme balances. However, comparing wealth, not just superannuation balances, at retirement produced some interesting numbers. Yes, NZ males were still behind their AU counterparts, but NZ women were actually ahead of Australian women. The article doesn’t have enough information to help one understand exactly what is being compared, but I still thought the numbers were interesting, including noting that Australian people need more because their state pension is means tested.
'The corporate regulator has requested an audit of bank cross-selling practices after it was grilled in a parliamentary hearing on how it will address vertical integration issues among the major banks.' Read the full article here.
A financial columnist at the AFR, Lucy Kellaway, is leaving to go and teach in London. It is a break from our usual insurance-focused financial news. However, I know that a good number of readers are interested and have acquired great skills in long careers in advice or management. If you have something to offer, it can almost always be used with gratitude somewhere else. We should have a programme like this here. Link.
Now I have seen the first article from Australia which picks up on this point, and I am delighted to do so. It is often easy to think of the regulators job as an adversarial one. They can become adversarial, certainly, but don't necessarily want to function that way. In fact, the more we all focus on a kind of 'market development' paradigm, the better the whole outcome will probably be. This report actually contains a lot of information useful if you care about the development of the market as a whole.
Jenée Tibshraeny has this excellent piece on the sales of insurance and the willingness of insurers to release claims data. If you are an adviser and easily offended by anyone talking about buying insurance direct then this might not be for you. But that would be a shame, because there is actually a lot of interesting data and quotes from insurers in the piece about claims rates overall and TPD claims in particular.
The whole interest in the piece has arisen because of the ASIC investigation into claims rates. That was a really useful piece of work. Although some in the Australian media are trying to portray it as more evidence of bad practice among insurers, it is actually a really positive report for the industry. The industry pays lots of claims - typically in 90+% range and upwards. The report also showed the value that Financial Advisers add: clients of advisers got more claims paid than non-advised customers. There was only one blemish, really, and that was TPD.
TPD has a bad reputation in Australia and New Zealand, but for widely divergent reasons. In Australia insurers don't like it much because the market has become highly litigious and almost everyone who is in work has TPD as a part of their superannuation scheme. So the cover is much more widely held and claimed on than in New Zealand. Here TPD is rarely bought and rarely claimed on. How rarely, we have no idea.
Regular readers will know that I am an advocate for more data. I love data and I think it helps make better decisions. I also think that advisers and customers are not quite the fools they are assumed to be by some commentators: they can use data responsibly. Some won't, of course, but they are probably making all the mistakes they will make right now.
But reluctantly I have to agree that NZ insurers are probably right to be cautious about releasing TPD data. There was a big change in TPD products about five years ago: the addition of 'partial' benefits in TPD. These arose because of negative media reaction when claimants suffered very substantial, and permanent, but not total disabilities, like losing a leg, for example. Mixing up the data from the older contracts with the new is a major risk. So is acting on your own if none of your competitors are going to share their data. This is an area where the action of an industry body or regulator can help a lot. Naomi Ballantyne is quoted as saying that she supports the idea of developing standards for the release of claim data in a recent goodreturns article, but recognises that there are technical challenges. Another challenge is this: if TPD does have a problem, with low claims rates, say, it will never be overcome by keeping it all a secret. It will only be overcome by making better products and being open about the value they deliver.
In the UK, the Association of British Insurers has had success in boosting market confidence in products through claims reporting. For them it wasn't about boosting direct over advice, it was about boosting all forms of sales through improved consumer confidence. That looks like a good goal to me.
Australia's third largest life insurer in Australia has said they expect to take a A$668 million charge on its wealth protection business. 'The company also announced a reinsurance deal with one of the world’s largest reinsurers, Munich Re, to cover 50 percent of A$750 million of annual premium income as it seeks to “reduce the magnitude of earnings volatility” and release an estimated A$500 million in capital. The deal is expected to cut the unit’s annual profits by A$25 million from fiscal 2017, AMP said in a statement Friday.'
Advice has a number of contributors to claim outcomes. Courtesy of ASIC, we now have data to quantify exactly how those help consumers at claim time compared to non-advised insurance. The data is in section 184 of the ASIC report - page 53. This is how it breaks down, by claim outcome:
Non-advised decline rate is 12%, compared to just 7% for advised channel claims. That is a huge variation: you are almost 70% more likely to have a claim declined in a non-advised channel product. Why is that? The chances are, its the product. Advisers do not sell the types of products that are commonly sold in non-advised channels. The differences will be mainly in pre-existing conditions exclusions and the absence of underwriting in many of these products. This is a valuable indication of the size of penalty that Quality Product Research Limited should consider when rating non-underwritten products. This may also be influenced by the adviser reviewing the potential claim, and pointing out when it really shouldn't be made.
Non-advised claim withdrawal rate is 11%, compared to 12% for advised channel claims. That gap is again bigger than it looks. The claims withdrawal rate could mean quite different things. An adviser may recommend putting in a marginal claim and withdraw it when it becomes obvious that it will not succeed. Or a client might make a claim and be talked out of it by an adviser - especially if the nature of the claim meant that it was, in fact, misrepresentation or fraud. We don't know, and it might be good to talk about this.
Non-advised partial claim acceptance is just 1%, compared to 3% for advised channel claims. This gap is again bigger than it looks. It will reflect a mix of things: the first is again product design. Advisers are more likely to choose complicated but comprehensive products which include partial payments. Non-advised channels, in their quest for simplicity, tend not to have these features. Another possibility is that advisers can advocate for payments for their clients under sections of their complex wordings that clients themselves might overlook even if they buy a complex product from a non-advised channel. Lastly advisers may be twisting insurance company arms: a client on their own is just one client, an adviser represents a large number of current and future clients too, which may prompt a little more flexibility in marginal cases.
Both channels have the same level of 'undetermined or unspecified' outcomes - of 3%.
That leaves the 'Accepted in Full' category of claims at 74% for non-advised and 76% for advised channels.
Of course, these are only averages, for some companies the decline rates are higher, and some much higher. There also appears to be an interesting effect on the level of disputes, but we will write on that later.
Lastly it should be pointed out that the claim acceptance rate on insurance you don't buy is always 0%. I am a great advocate for insurance and feel that non-advised cover fills an important gap for many people. 74% full claim success rate is a very, very, great deal better bet than not buying cover at all.
In this piece at RiskInfo.com.au Sue Laing is quoted as highlighting the dangers of publishing claim acceptance rates. Here are some examples of her concerns:
The underlying reason for Laing’s concern is that a ‘leader-board’ of decline rates will create competition between insurers to avoid rejecting claims in order to achieve a higher placing. She believes this is a dangerous precedent that would lead to an unsustainable pricing structure that could only be addressed by price hikes.
It is possible for such data to be misinterpreted. ASIC's report was balanced and positive for the industry, only noting some concerns with some types of direct insurance and the high variability in TPD payment rates, but the media has held it out as something far worse in some coverage in Australia.
Laing proceeds to list problems with the data as issues as well:
She also questions whether the industry even has the capacity to report consistent claims information, saying claims data reported by insurers is “…ridiculously inconsistent.” Laing adds, “Even claims causes, which most of the life insurance world globally reports based on an international code but our industry doesn’t, are impossible to properly collate. The risk store has experienced that first hand for 10 years as we have struggled to gather and publish annual industry claims paid and causes statistics to the best quality we can muster from what we are given.”
Laing has a point, but I think secrecy is the wrong answer.
I know the claims data is poor. Plenty of evidence supports scepticism about the numbers. Take the calls to Sovereign after the Christchurch earthquakes for example, they were just confused customers, not real claims. But what about someone who thinks they have IP and only have TPD, is that a claim? Probably not. Now what about someone who thinks they might qualify for a partial payment under their TPD but just misses out? Probably is a claim. And so on. But the answer to this complexity isn't to allow claim payment rates to remain in the shadows. The answer is to work towards industry standards of record-keeping and reporting.
When Laing points out that most of the life insurance world globally reports based on an international code, but Australia doesn't... the first question in my mind is: why not? There may be a good answer, but claims rates look like exactly the kind of data we should be working on.
Finally, I think that focusing on one measure alone is always a bad idea: just price, just product quality scores, or just financial stability, or just claims data, or even just customer service scores. People need to take a look at the lot and make a call. Some won't want to - too hard! - they will be better off using a professional adviser. Others will be happy to rate trade-offs and consider options just like they do with other complex financial purchases with multi-year downstream effects (like buying a house).