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Kiwis put life insurance in 'too hard' basket - Business - NZ Herald News

Kiwis put life insurance in 'too hard' basket - Business - NZ Herald News

Well here's an odd collection of excuses and valuable information.

On the one hand we have susbtantial underinsurance, and consumers have low confidence in the financial sector, and few will have seen a life insurance claim paid in their lifetimes - so all plausible and even likely.

On the other hand people that don't have any life cover need to have an excuse that doesn't sound like "I haven't got around to it" or "I'm too cheap" or "I don't care".

Platform Shifting - Life Illustrations

The vast waste of money that is life company illustration software is being challenged by the shift to 'the cloud'. I look forward to the day when life companies can discontinue the issue of software on disks - or even for download - and use either skinny apps for smartphones or pure cloud apps. Soon the era of quote software will thankfully be behind us.

Unloved though quote software is, it was better than what there was before. Before computers were widely used by advisers we had endless nasty little premium quotation books. When I started in the industry in New Zealand I quickly amassed a collection of these from a variety of different companies - donations from advisers who had spares, and valued having someone they could ask for a second opinion. It could be characterised as an era of unrecoverble innocence - but of course it wasn't. It was merely practice that an adviser had a brochure, and all that was required in the sales process to illustrate a product was to add a premium.

Making projections of likely future values - first for traditional products and then for unit-linked contracts was the main driver for the shift to PC-based systems in the pre-internet era. But it was still common for an illustration to fit on two pages. But then came more detailed rules around what would be illustrated.

The idea that a client would hardly buy without looking at the price made the actual illustration valuable territory for legal teams keen to find a place to insert important disclosures in the sales process. They needed a place where they could confidently assert that the client had at least received information - if not actually read or understood it.

That meant a shift - to bloated illustrations, but also to nicer product brochures - which could then take a number of different paths: simplified explanations of cover, concept documents, or brand vehicles.

With the market almost entirely term life insurance, and the Financial Advisers Act now helping us to focus on other aspects of the sales process (unit standards exist in the education required, for example, for presenting plans) there is some hope that the core of the modern illustration - a premium quote - could be separated from the pages of guff that have grown around it.

By stepping out of the limelight the illustration could give way to more focus on the policy wording, which is, after all, the actual contract. The scope for illustration, brochure, and policy wording (not to mention what the adviser says) to deviate from one another has been a constant threat to clarity, and therefore the ability to enforce the policy.

We think that a redeveloped sales process will take into account these risks and opportunities. It should be built from the ground up - the foundations being:

  • The legal and regulatory framework established by the Financial Advisers Act, and other requirements be they legal, regulatory, or contractual
  • The body of knowledge sales-people have of what actually works with clients
  • The brand objectives as expressed by a research-informed marketing team

Of course, there will be plenty of reasons for advisers to spend a fortune on IT - in fact a growing reason. They may have more complex client management systems, they may have complex planning tools, they may have clever data feeds, they may have nice presentation tools. There is no real reason why all of these cannot be based in the cloud as well, but as they involve significantly greater processing power and involve the use of sensitve data they may take longer to shift.


Advisers Getting Grumpy

I've had numerous advisers contact me with regard to agency agreements over the course of the past few weeks - they are grumpy. Grumpy about changes to the agreements, or how the agreements are being interpreted, or they didn't really look at them before they signed them.

All this is coming to a head right now as agency terms are being revised due to the implementation of the Financial Advisers Act. That review has also triggered a review of how the agency terms are performing as a method for executing strategy, and supporting operations.

For example:

  • A strategic driver would be, say, a shift towards aligned distribution channels.
  • An operational driver would be requiring better security to cover commission debits.

Having ignored the issue of agency terms for years - in some cases decades - as they are brought back into the spotlight in an environment which places compliance as the number one priority, and business model as the number two suddenly advisers are finding terms hardening against them.



Call for Submissions - Cavalcade of Risk, Downunder Version

This blog will be hosting the next Cavalcade of Risk which will be compiled between now and Wednesday. I'd love to have a number of NZ risk-focused posts to put up. If you run a broker website, drop me a link to a risk piece that you wrote within the last six months. If you run a life company - any information / case study, or educational piece within that timeframe may also be submitted. I know there are at least four risk bloggers in NZ (other than me) and I'd like to feature a post from each of them.

The benefit is twofold:

1. You never know who is reading! We've had 4000 page views in the last three months.In the two or three days after we do a Cavalcade there will be 300.

2. It's a good community exercise - people that write about insurance can pick up material and ideas even from just the shortest post linking to some interesting news or data.

Linking Pensions to Longevity

Governments bilk us by having fixed tax brackets and, as incomes rise with inflation, more and more people slip into higher brackets. But on the other hand, governments extend pension benefits at a fixed age, and with increasing longevity we enjoy state pensions for longer and longer. Now, in the UK, there is discussion of linking pensions to longevity.

Fair though that might be in general, it has always been necessary to have a good safety net in the form of a disability pension - or disability -assessed entry age. Retired civil servants tend to live a lot longer in retirement than retired drainlayers.

On the other side of the coin this gives me an opportunity to point you to a good calculator which shows life expectancy at birth, for a given birthdate, and age adjusted life expectancy. It's got a bunch of stuff about how to live longer, and so on, unless that flicks your switch - but the stats are good.


Cavalcade of Risk 127 is now online

The best of thr risky posts from the insurance and risk-focused blogosphere (a small sphere, perhaps, but quite bouncy) can be read over here. Although your's truly gets a mention you will already have read that article.

So here are my favourites, but you will have to head on over to the cavalcade to find them.

  • How to prepare for a major home disaster - from an insurance perspective, it's not a civil defence checklist
  • Why Californians won't buy earthquake insurance
  • Caution before you cancel your life insurance