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Privatising Superannuation

The view that KiwiSaver privatises superannuation has been gaining traction now for a while. I have pointed to posts by Matt McCarten and David Farrar on the subject before. This time Farrar reviews a post by McCarten on how current KiwiSaver proposals (the third in two years, just for all those who said the system would be simple, and there wouldn't be many changes), would be unfair to the young, the old, and the poor. Heavens, agreement all round from left to right. Something must be wrong here. Link.

Reverse Mortgages and Insurance

Reverse mortgages cannot now be sold in conjunction with most forms of Insurance in the US. This is mainly because of shonky back-to-back affairs where large whole of life insurance policies were sold to people funding one off premiums using equity release loans. Link. There are, of course, some legitimate applications for insurance alongside equity release - such as medical insurance, long term care, and the like. But all will now be harder, or must be referred to an arms-length salesperson.

Article on Housing Affordability

Lessons from debates on housing affordability. Projections are ridiculous.

This article from the Herald almost slavishly represents the view of the Property Investor's Federation that renting is better than buying. There's plenty of debate about it. To get two goo opposing views consider the Standard (a blog that has recently achieved dubious fame because it's alleged links to the Labour Party), and, David Farrar's KiwiBlog. Even only occasional readers will know that I would not naturally be an ally of The Standard, but one statement is bang on, they point out who the Property Investor's Federation is, and why the view is such a strange one for them:

"...the PIF is a political lobby group that represents landlords - ie people who make money off others renting from them, people who obviously think that owning properties, multiple properties, is worthwhile."

Right now, it isn't, renting is better, but presumably they figure in the long term the landlords figure owning is a good idea. Which is why you need no great mathematical ability to decide that the opposite assertion is probably wrong, at least under certain conditions.

As I look at the comparison I am reminded on when I first started in the financial services industry in New Zealand about 20 years ago. We were just at the end of the period when mortgage rates were high. The house I bought here first had a mortgage on it with rates at 15.25%. I remember them clearly. Property price growth had been slow. Projecting at those figures showed housing as a bad investment too. Today while not quite as extreme, we have a similar situation. In fact we often have. 'Projections' of things like future cash values of investment contracts were very popular too. Most of them pure fantasy. Especially those done wither near the top or the bottom of each economic cycle.

Here's another example. Right now Sentinel is showing HER projections with interest rates at about 12% and property growth rates at 0%. This is plainly bunk. They know it too - but they feel compelled to use these figures because they are realistic given current market conditions. They just aren't realistic over, say, 20 years. A much better rate would be, say, the average over the economic cycle. But if they projeted at a rate lower than their current interest rate the Commerce Commission would be on the phone pretty quick.

The Costs of Self Insuring

Here in New Zealand employers are only really coming to terms with the idea of providing insurance cover for their staff again after years of ignoring the area during an era of cashed up benefits. As increasing numbers do provide health insurance - one of the best insurance products to offer employees - they will gradually come to consider the benefits of self-insurance. A fascinating article gives a glimpse of the choices that will then form part of the equation. Link.

Insurance Today

It has been incredibly busy, as anyone in the insurance industry should be right now. A while ago I was telling people that the financial crisis was bad for every sector but insurance - because it reminds people that they are not bullet proof, bad things do happen, and you'd better be prepared for when they do. Well, it seems to be borne out by the data, and is backed up by reinsurers comments reported to larger retail insurers here in NZ. Insurance is more or less counter-cyclical. Of course, not-so-hotso eocnomic times also bring a spike in disability claims, so in the land of insurance, so silver lining is without another cloud.

New distribution channels continues to be a great theme for the year. As rising costs and the desire to do more in good conditions (for insurers) causes them to seek out new methods of bringing their product to market without the massive cost of winning independent broker market share.

Which is why it has been interesting to do some work with a group of general insurance brokers recently. The slightly different perspective offered by them and their clients and associated challenges are related, but taken from a slightly different direction. This slight difference - like the arrangement of human eyes - allows more accuracy in measurement. It reaffirms the challenges that we have - they are in scalable distribution, sales efficiency, and mass customisation of complex sales. No, regulation is not in that list. It is largely a temporary distraction, and not fundamental. Think on it.

Finally, Winston's troubles have a financial angle. Someone has been looking at the tax aspect. Giving me an excuse to mention it again!