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Disability Insurance Awareness + KiwiSaver

This is why insurance should form part of every long-term savings plan -

Half of all Americans say they would rely on personal savings or retirement savings to make up the difference, according to the latest results from the Principal Financial Well-Being IndexSM.

..if you want the savings to actually be there, you need cover against the predictable problem of disability.

“We’re seeing a frightening trend in


where individuals are relying on personal savings or retirement savings to protect against the unexpected, which can lead to devastating financial consequences. Americans are in denial of the likelihood of becoming disabled and therefore not protecting their most valuable asset, their ability to work and earn an income,” said Jerry Patterson, vice president of marketing for the Principal Financial Group. “Disability Insurance Awareness Month is a great reminder of the importance of disability insurance as part of an overall financial plan.”

This is the case which we, as an industry, failed to make around KiwiSaver.

Sense on food prices

Food prices have risen - no doubt about it - but even a dedicated carnivore like myself would have trouble with the seven kilos of meat in the Herald story. Even when they are broadly right - that food prices are going through a shocking rise - they should try and report the story, not make the shopping basket fit a pre-conceived idea of the story.

But it is serious. It's especially serious in that it is an entirely man-made phenomenon. Two huge causes exist: distortionary subisidies and allowances in Europe and the US which also protect their food markets from overseas competition. This does strange things - like subsidising food production where it is expensive, depriving developing markets of the access which would help them invest more in food production and raising yields to western levels, and even paying huge sums to leave fields fallow...

Another dimension of these distortions is bio-fuels. You will have doubtless read much about these, but some interesting additional comments are pointed out by David Farrar over here. Especially the Federated Farmers comments on the reduction in food production being directly correlated to the price of carbon. Which appears to be coming true.

Now the greens leave us with an easy choice - shall we starve today? or boil tomorrow? We need someone with some new policy answers.

Giant Squid

Fran put me on to the Te Papa blog, it is excellent. Strangely fascinating it is so far from the intangibles of insurance distribution and the challenges of the credit crunch it gives me just what I look for in a morning coffee website: a complete change of perspective - a holiday in 15 minutes. Do check out several curiously gripping posts on the disssection of a Colossal Squid. Here's one to get you going.

Good advice for budgeters

More good financial planning advice comes from journalists than the bottom 500 members of the IFA. That's what I thought when I read Diana Clement's recent piece for RaboBank. One can't blame the financial advisers, of course. They go where the money is, and there's no money in budget advice. But it's worthwhile remembering that the 70% of people who will never have enough money to trouble an investment adviser need advice too - and many of the rest could do with it. Link.

Mortgage Diversion

Link to stuff article. More reinforcement that the unloved fudge of KiwiSaver to make it attractive to homeowners is going to get expensive. It will be expensive for savers, fund providers, and lenders alike, and all will make it hard to do. The simple fact is you need to reduce debt aggressively before you do a lot of saving. But there is room for a hybrid approach in the name of building good habits. In such a case the KiwiSaver programme should be at minimum levels. Link.

HER Survey Data

Here's a bit more detail than you would have seen in the Herald article that came out today:

Actuarial practice Trowbridge Deloitte today released the second comprehensive study of the New Zealand reverse mortgage sector. The study was supported by the Safe Home Equity Release Plans Association (SHERPA), the association for New Zealand’s providers of home equity release plans. The Trowbridge Deloitte New Zealand Reverse Mortgage study found that the reverse mortgage market at 31 December 2007 consisted of more than 6,500 loans with a total book of almost $365 million. This represents growth of $138 million or 64% since the corresponding period of 31 December 2006. James Hickey, Trowbridge Deloitte partner who led the study said, “The market has continued to grow strongly in the past 12 months with the sector’s outstanding loan book of $365 million at 31 December 2007 increasing from $227 million at the end of 2006.” Mr Hickey also said that “settlements of new reverse mortgage loans were $106 million in 2007.” Rob Dowler, Executive Director of SHERPA, said, “Growth in total loan balances remains strong but below earlier expectations for the year, reflecting the difficult credit market conditions for lenders in the latter half.” “if growth in settlements continues at this rate, it would imply total outstanding loan balances could exceed $500 million by the end of 2008.” Summary of the key findings

Her_mkt_summClick on the pic to make it readable.

< Additional key statistics and directional trends are: Market grown by more than 60% in 2007 Fixed interest loans emerged during 2007, more than 10% of new loans are fixed. 99% loans are lump sum, income stream style has yet to gain acceptance Broker and Advisor channel largest (60%), followed by Direct and Alliance Additional Draw downs are 10% p.a. of outstanding loans North Island has largest penetration (71%), with Auckland the major city (22%) Couples are more than half total borrowers, however less than half of discharges 70-79s largest age bracket, however 60-70 year olds continue to be a growth segment. New information on additional drawings and discharges: Just over one in four existing borrowers drew down additional funds from their facility during the year, and the average amount of additional drawdown was $17,100 Around 8% of outstanding loans were totally discharged over the year, with majority due to sale of property and voluntary repayment. In addition, partial repayments amounted to an additional 1% of the loan size outstanding Commentary on findings “The continued growth in the use of home equity release loans by retirees will remain underpinned by the very high proportion of New Zealanders’ wealth tied up in housing. A home equity release loan can be positively life changing when properly matched with a borrower’s need,” said Rob Dowler. “The average age of all borrowers is 74, with an average loan size of $55,700,” he said. James Hickey explained, “Draw downs were almost predominantly lump sums, with negligible take up so far of income stream reverse mortgages.  Of such lump sum draw downs, the equity is primarily used for home improvements (28%), with the next most common use being for debt repayment.” Dowler noted that only about 53% of the total approved loans are accessed straight away, down from 60% in 2006. This illustrates that New Zealand borrowers are remaining well within their approval limits, and drawing down as they need funds.  Should they later require additional advances of cash, they will have such access available up to their approved limit, as demonstrated by the additional average draw downs of $17,100 noted in this survey” he said. Dowler said, “The North Island leads with the highest number of reverse mortgagees (71 percent). The South Island has 29 percent. Provincial interest in loans remains strong with 56% of new loans drawn down from outside the five largest metropolitan areas especially in the North Island Hickey highlighted that couples are the largest borrowing segment (54%) followed by single females (33%) and single males (13%). The average age of new borrowers is 72 years. Under 65s account for 11% of outstanding, and 65-69s account for 19% outstanding, both down about 2% from 2006. The under 65s use a high proportion of the facility available (75%) compared with those aged over 80 using just 40%, the difference in part explained by the lower amount of equity available to borrow at the younger age. Hickey also explains, “The growth in fixed interest loans from virtually zero to 11% of new loans reflects the introduction of new fixed interest home equity release loan products in New Zealand just over a year ago.” Discharges involve borrowers repaying their reverse mortgage either partially or in full. In 2007, 7.5% of all loans were fully discharged with a further 1% of outstanding debt partially repaid. Hickey reveals that for the first time, Trowbridge Deloitte was able to distinguish the reason for discharge. “This showed that over three quarters of all discharges were due to voluntary repayments and sale of property. Only around one in 5 discharges were due to mandatory reasons, such as death or a move to aged care facilities.” This is important as it shows that reverse mortgage borrowers are actively choosing to repay their debt before the natural end of the loan term. Dowler points out that this reinforces the flexibility offered by reverse mortgages. “Loans are often used for short term purposes and repaid once finances are available.” Hickey said, “The mortgage broking channel is the most popular with 60 percent of reverse mortgage lending having been facilitated by a mortgage broker or financial planner.  This early popularity of the broking channel shows that New Zealanders are using intermediaries to assist in the borrowing and advice process when it comes to reverse mortgages.” “Brokers and financial planners are well placed to assist and advise borrowers on how reverse mortgages can be considered as part of holistic retirement planning for New Zealanders.” Dowler said, “It is important to educate intermediaries on the unique characteristics of reverse mortgages, which is why SHERPA has set an objective this year to develop an advisor’s guide for home equity release loans. SHERPA is also continuing to work with the Office of Senior Citizens on the development of a statutory Code of Practice for the industry.”