moneyblog

Understanding the preference of younger customers

As someone that fits into under 45 category, I am not surprised that those surveyed under 45 prefer to use electronic methods of communication. Through the use of electronic methods, you can easily and clearly express your interest, issues and concerns anywhere and at any time.  In order to serve all segments of your market, it is important to understand their preference. Click here to read Tony Vidler’s take on this topic

Research on lack of women in financial advice

Goodreturns has a piece covering research on why there are fewer women in financial advice. They quote the percentage of female advisers as 23.5% applies only to investment advice, and can be reasonably easily verified with reference to FMA information on AFAs. I am pleased to say the in the area of insurance advice, female participation is quite a bit higher - although no easy reference source exists, the audience at Quotemonster workshops is indicative. I was struck by this comment, however: 

"The study said the industry could help by normalising part-time work opportunities"

But many of the changes to the financial advice regime will make part-time work harder. In Australia advisers are telling me that the requirements of FASEA (much tougher than in New Zealand, and probably needlessly so) will make exactly the kind of part-time work the authors envisage impossible. 

 

Does robo-advice worsen bias and can AI fix that?

There is a concern among regulators that robo advisers do not make their selection process clear to customers - so algorithmic advice may be biased, especially in those cases where there is a choice of product providers. There are several ways such sites can lead clients to believe that their choice is perhaps wider and the process fairer than it might be. One is simply the way the starting set of companies is selected - if you have a mid-market product and you want to favour that one then it is easy to only select products that are in some obvious way 'worse' - say more expensive or offering less cover. The manner in which you apply selection criteria can affect outcomes too. If you apply selection criteria in a series of 'rounds' where you eliminate products you can imagine that if you knock out, say, all the products that are more expensive first, then in the second round you may find it easy to win on a coverage criteria. Even considering criteria in a balanced scorecard can be  gamed in some ways - such as the weighting applied to each factor. That is why the Financial Conduct Authority in the UK is interested in how robo-advice works, and in particular how they meet requirements to check suitability, but also other advice safety issues.

It is not just bias in sales that concerns us - it also happens in underwriting and probably in claims. Humans are prone to bias in favour of groups to which they belong, and by implication against the others. That can reinforce existing societal prejudices and make life harder - more expensive policies and more declined claims - for minorities. Is there hope? This article from Daniel Schreiber, CEO & Co-founder at Lemonade explains how he thinks an AI we may never understand can eliminate discrimination and bias in insurance. Of course, I note that he isn't talking about bias in insurer selection - Lemonade is a single insurer offer, not a marketplace. 

Australia: the opportunity-cost of advisers furthering their education

Continuing education is designed to enhance, improve and further an adviser’s skills, but in order to do so an adviser must take time complete their qualifications. It is evident that complying with the new regime presents a high opportunity cost for advisers. Much higher in Australia than it is in New Zealand - Click here to read more.

Comparing the air quality of cities

Click here to see how the air quality of city you live in compares the most polluted cities in the world. This comparison does not take into account Australia's recent catastrophic bush fires. It is likely that air quality will become an increasingly important issue. It is becoming a political issue in China and India, and I suppose, given recent opinion polls, in Australia too. From a risk management perspective it is a huge concern increasing lung cancer incidence and risk - to name just one example. 

Partners Life: New Adviser Training Course

Partners Life have announced their next New Adviser Training Course in Auckland. It is to be held from the 7th to the 19th of February above their offices in Takapuna. The course is recommended for advisers who have been in the industry less than 24 months.

Click here to register.

Asteron Life gets new executive manager for corporate affairs

Marie Hosking has been appointed as Surcorp NZ's new executive manager for corporate affairs which will also look after Vero and Asteron Life. As mentioned in this article Marie comes from Mercury Energy and 'has extensive reputation, crisis management, and journalism experience'

 

When valuation of client base or whole business is useful

We offer a basic client base valuation, and a more complex business valuation service in conjunction with a chartered accountancy practice, where we supply the specialist industry knowledge. A valuation is useful if you are looking to:

• Sell
• Buying out
• Succession planning
• Borrow from the bank
• Transfer shares into a trust

Or if you are going through:

• Shareholder/partnership disputes
• Divorce/separations

Kōura looking to improve its digital advice platform - the struggle is conversion

Rupert Carlyon, Kōura founder has said since going live, they have given advice to 3,000 people through the company’s digital advice platform. They are looking to roll out new messaging to improve user experience and understanding of their products. Click here to read more

The internet is a great platform for data-rich financial services. Since its earliest days financial services (led by sharetrading) have been a leader in e-commerce. But there is a catch. It has always been difficult to convert a lot of interest into action. We can easily deliver data, calculators, and content - and still struggle to achieve connection, engagement, and action. This is the overarching problem with digital. It is worth working on, but it is hard. 

Goodreturns article wrong to be pessimistic on COFI-driven change

Goodreturns has a piece by-lined BusinessDesk which is pessimistic about the outcomes for introducing the Conduct of Financial Institutions reforms. I found the attitude of the article intensely disappointing. Not because there aren't problems, when there plainly are problems. Not for the numbers that were right, or the numbers that were wrong - some are hard facts and some are conjecture, and we are all entitled to share a point of view. Not for the failure to be even handed, although it wasn't: the author is particularly critical of advisers, but the Hayne commission tended to find the biggest problems in direct and vertically integrated channels. 

The main reason I am particularly disappointed is that it fails the standard the industry is being held to: it fails to address what a good customer outcome really is, and consider what the right pathway is to that. Instead it focuses on a few proxy numbers. Minister Faafoi does better because they have a vision of increasing confidence and clarity for consumers. MBIE does better because they consider efficiency as a whole and suitability throughout the product life-cycle as important factors. The industry does better because, contrary to the assertion in the article, they do look at more numbers than just new business. Lots of advisers, managers, owners, and leaders care a great deal about customer outcomes. Only one was quoted, but I could quote hundreds more. There are many differing views among them, interesting views that are actually shaping the future. 

There are progressive parts of the sector that embrace change, and there are others that prefer a risk avoidance strategy. A customer-focused view of industry problems needs to consider the fundamental challenges of writing complex business with a multi-decade time-frame. Those include: complexity, information asymmetry, data availability, equity between customers, and customer engagement. 

Contrary to the viewpoint in the article I think COFI has had a substantial effect already. An enormous amount of work by industry groups has been done to try and understand, guide, and change what goes on inside businesses, channels, and the conversations with customers however they engage, to address the real difficulties listed above - much of it has been work in progress and pre-dates COFI and the conduct review, such as the FSC Code of practice. I track every product change, every pricing change, at least a dozen products that had been unchanged for years have been updated and pricing revised. At least one product line has essentially been abandoned by the industry as a whole.  That might be good - but being un-replaced there is a lot of unmet insurance need. Other changes are not solely conduct driven, but are related, like the acquisitions of bank insurers by specialists and the opening of new channels. There has been more change in the industry in 2019 than anyone thought possible in, say, 2017. 2020 looks like being even busier. Contrary to the pessimism displayed by the BusinessDesk piece few pieces of law or regulatory change can claim such success.

Valentine’s Day breakfast with Geoff Bascand

FINSIA NZ will be holding an event alongside with Geoff Bascand, Deputy Governor and Head of Operations at RBNZ.

Date: 14 February

Time: 7am – 9am

Venue: New Lynn RSA

Cost: $25

To RSVP email your interest to the FINSIA Events email.

American medical services prices vs global prices

The International Federation of Health Plans published their latest report on the 2017 prices of international medical services. The report illustrated that both patients and insurance companies in the US paid higher prices in comparison to other countries sampled in the report. The 2018 study by Harvard on the things differentiate health systems found that the US is distinct in a number of ways.

Click here to read more

The US is a very high-cost economy and there are dangers of comparing goods that cannot be traded across borders. A good example to remember is that your don't mind paying perhaps fifty times as much as someone in rural China for a haircut, because everything here is pricier. But service costs are becoming increasingly comparable and can be subject to substitution: some people can get their hip replacements done in Thailand, for example. 

Lifetime wealth and insurance

So many New Zealander's feel that they may never have enough lifetime wealth (see this article by Rob Stock at stuff.co.nz). To focus on the positive: at least they are thinking about a good question. How much money is required to life out the rest of one's days is the number that underpins most strategic financial planning. It's the node which links planning for life and disability insurance to planning for retirement.

Most people in the financial services industry have several ideas about this number: a kind of rough rule of thumb, some assumptions about what should or should not be included, and then a much more detailed number they have worked out in their own case - and therefore a clear idea on how to do so. Most other people, unless they are working with a good financial adviser, haven't got that far. Just trying to work out the number generates the right kind of context to work on all sorts of financial planning questions, which is one of the reasons this question is such a good one to address.

For those of us with a strong interest in life and health insurance, it is interesting because that figure for lifetime wealth is essentially the amount of money required in order to never need to earn an income again. That's a circumstance broadly equivalent to total and permanent disablement. It is also a guide to the level of wealth at which insurance may no longer be required - although it may still be desired, in order to protect that wealth.

Of course, it is slightly more complicated in many risk planning situations. Costs can be higher in the case of disablement compared to retirement, but the time horizon may be shorter - as those with chronic health conditions affecting their ability to work have lower life expectancy. In the case of the death of a family member future financial requirements are affected by both the loss of income and the loss of expenditure by the deceased. Variations abound. When financial planners talk about their approach to calculating this number I like to hear the details of how they calculate the amount, and intrigued to hear if they consider age-adjusted life expectancy in the process. If you are interested in further discussion on this do let me know, I have a number of resources available to share. 

Charity Hospitals are growing to meet the demand for elective treatment

As Kiwi's needing non-urgent surgery are being turned away from public hospitals due to long wait lists, charity hospitals are becoming an option for many.

Click here to read more. 

Understanding needs of young people

Taylor Fry released a report with a prediction that  7% of people under 25 in New South Wales will account for half of the estimated $100 billion cost of the state’s social services by age 40. The New South Wales Government released the report in hopes of understanding the needs of children, young people and families. Click here to read more. This reminds me of the work done by our government to identify those with most likelihood of high lifetime social costs and focus help and support on them while they are children in the hope of heading off the downward spiral. 

Medical comparison database update

We have issued Medical Comparison Database v77 to subscribers. This version includes the following changes:

• New nib rates effective 1/1/20
• New AIA policy fee effective 1/1/20
• New table which shows rates update history in a format which can be easily sorted by company or effective date

Why a life and health adviser likes providing travel insurance advice - for free

Talking with an adviser the other day I was told why they like to offer travel insurance advice - even though they make no money from doing so. What they do is maintain a one page guide to travel insurance, and on the back, provide a comparison of the major travel insurer's policies, including the key sub-limits and exclusions. They update it quarterly and mail it out. Apparently its a hit. The reasons they give are: 

1. Their best clients travel overseas every year, so they are always interested, and grateful for the input into the decision-making process
2. It's added value, and completely independent because the adviser doesn't sell it, so its a great trust-builder
3. It demonstrates expertise, showing the kind of thinking the adviser puts into their other work
4. It reminds the client that the market is always more complicated than it first appears - underlining the need for advice
5. It is a simple way to introduce wider concepts - such as excess levels, how much self-insurance one is comfortable with, and what service levels you are looking for from an insurer

 

Financial Advice New Zealand launch insurance toolbox

Financial Advice New Zealand has launched their insurance toolbox, offering video, social media posts, and newsletter items for members. 

You can take a look at the offer at this link: https://financialadvice.nz/insurance-marketing-toolbox/ 

"All kinds of insurance" and other marketing fails

If you are one of those insurance advisers that has written on the back of their card that you "specialise in all kinds of insurance" then I'm sorry, but I think you need some new business cards. You aren't specialising if you do everything.

It's easy to get caught up with the idea of being attractive to large numbers of people. There are about 2.7 million kiwis that can afford and probably need some insurance. Perhaps you feel that you don't want your business card to turn any of them away. But that isn't your big problem. Largely, these people are apathetic about insurance as recent FSC research painfully underlines. Besides, you don't need that many - you need just a few to really want to deal with you.

That's your big problem. In fact it's our big problem - the industry, insurers, advisers, group providers, HR departments, and more.

While we spend our time obsessed with being attractive to as many people as possible, we become mediocre, and fail to stand out enough to get the attention of even a few motivated souls that would see something that makes them think "that's the one, I think I'd actually like to talk to them."

Australia: advisers being urged to cut costs

It has been reported in an MLC Life-commissioned white paper that 67% of advisers reported a decline in profit since the commission reforms begun. It has been stated that advisers need to cut expenses by 20% - 25% to remain financially viable when upfront commission is reduced to 60% in 2020. Alternatively, advisers could start charging a fee for advice. Click here to read more. Of course, the problem is that at the same time as income is falling, costs are rising. These are not just cash costs, but the additional time required to meet compliance requirements. I have met with two AFAs in New Zealand who, over the past five years, have found the time required for each client's compliance requirements is squeezing margins and reducing the time available for marketing and client service.

There are solutions, but most require additional investment. New administrative systems are not so much costly, as most online tools are now very cheap, but time consuming to configure. You can avoid configuration costs by opting for standard systems, provided by someone else, but in that case you lose differentiation.

A conversation that begins as one about automation, usually ends up being about what you consider to be good advice - because we usually need to define advice process before we try to optimise delivery.