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Adviser Numbers

The goodreturns piece about Beaton's new survey is useful - but not because of the categorisation of advisers into A, B, C, and D, nor the split of business, nor even the characteristics of those adviser groups. There is obviously no causal link between being AFA and a top adviser - in time there might be, but right now it's only descriptive.

The best information was the total number of advisers reported, again, not a comlete number, and based on adviser systems data at life companies (advisers who regularly receive mailings from a life company will understand why that implies a level of inaccuracy) but it is nonetheless a useful piece of research which deserves support from the industry.

What is a "Savings Culture" for if not increasing savings?

When KiwiSaver started I said I was quite happy to take the tax break. Don Brash thinks KiwiSaver was a bribe by the last Labour Government to middle New Zealand - effectively a tax-break from a government with an ideological aversion to giving them. He questions whether it has increased savings at all. At the time a number of commentators said that all it would do is move savings around, rather than increasing them. The evidence for increased saving appears slight, the evidence for poverty reduction contrary, and the evidence for economic benefits very weak.

I have also criticised the inherent contradiction in the way KiwiSaver is regulated. One the one hand it is so good, clear, and simple, that people can be defaulted into it. On the other hand it is so complicated, serious, and important that only an AFA providing a personalised advice service can sell one. If the FMA is right, and their arguments about the long term value of the scheme are pretty good, then government must be wrong.

So we should at least consider the merits of the scheme. Reviews do no harm. But there are a number of issues which need consideration - such as shifting the retirement age to 70. Something John Key says will not happen on his watch. Hmmm... given what has gone on with longevity, and lengthening of working life, his position looks increasingly wrong-headed. But perhaps a review of KiwiSaver could help with this problem - it is, after all, really our money. Maybe we could have that whenever we want to retire, and they can pay us New Zealand Superannuation when they think we should retire.

Lastly, it is interesting to read all the comments about the "savings culture" which has been created by KiwiSaver. Five years on, I question this. If a "savings culture" has been created, but no actual increase in savings, then what is it good for?


IBANZ survey of insurers

IBANZ did this survey of insurers - rating them according to factors such as communication, claims handling and so forth - and found the following were leaders in their response to the earthquake in Christchurch. On a scale of one to ten:

"...only NZI and QBE rated over 8, followed by Lumley and Chartis..." the others followedon scores of 6 or lower.



The Future of Financial Advice

In Australia the development of proposals under the "Future of Financial Advice" legislation is getting down to the practicalities of implementation. There are some very positive developments. But before we explore those, lets bring to mind the central issue for risk advice: commission payment.

Overwhelmingly this business is sold on a commission basis - even more so than investments. We have seen nothing like the consumer harm done in risk that we have seen in investments. While complaints exist, and so do conflicts of interest, there is a very great public good which is derived from having lots of people with adequate insurance. Billions of dollars in privately funded claims payments for the Christchurch earthquakes are a good case in point.

But in the debate about the more serious conflicts of interest issues that have occurred in investments there remains a risk that the whole distribution structure for risk would be swept away. If it didn't exist as a way to pay for the distribution of a typical life insurance package how would ordinary folk who can't afford to fork out $1,000 for a financial planning service pay for the advice they need?

It is therefore good to see the planned changed in the FoFA legislation in Australia. You can find out more over there, but here is a quick summary:

  • Remember: individual risk business was never included
  • Commissions will now be allowed again for life insurance sold as part of certain superannuation plans (individual choice plans)
  • The government will introduce uniform clawback provisions on commission to reduce 'churning'
  • There will be no ban on existing remuneration arrangements



Social Networking in Financial Services

For those struggling to employ social networking in a low involvement category (such as insurance) or one where there are some quite strict social mores around disclosure (wealth and borrowing categories) then you will be interested in anything that tackles social media issues at a conceptual rather than technical level.

This item from Nina Khosla is brief but contains some gems. Here are two:

... the paradox of the social network that no one wants to admit: as the size of the network increases, our ability to be social decreases.

Nina pins the problem of relevance, and emotional connectedness - the issues are these:

When I think about the kinds of things I tweet, they’re things like “I just read a cool article, check it out,” or “About to get on a plane,” or “GOALLLL!” if my team (the San Jose Sharks) has just scored. The thing about all these is that they’re not a shared experience

KEY: now isn't that the problem of commercial use of social networks entirely? We're sharing our experience / view with 'them' not actually describing a shared experience or view.

...whereas, when it works well, it's like this:

The conversation does not center around any one individual’s experience, but rather the collective condition of the community. The conversation is the experience. Each comment is driven with the purpose of evoking and expressing the emotions that the community experiences, and particularly the ones they hold in common.

Get there and you have an engaging social media strategy.

Financial Death vs Actual Death

TPD has been engaging us recently. Claims are very few, but the condition is especially damaging financially: not only is the insured no longer earning, but they are a substantial drain on resources. On the other hand, while the working life risk of dying is substantially higher, the financial impacts are usually lower - the survivors usually resume a normal life (often creating a new household with a new partner) and they have no ongoing costs.

Part of the consideration is life expectancy after an event which would cause total and permanent disablement. The situation used to illustrate the case most often is paraplegia or tetraplegia - caused by injury to the spinal cord. So I have been reading up on papers such as these to learn more about life expectancy after the event. Here are some key points:

  • 82% of these injuries occurred to males
  • For those whose injury occurred after age 40, 25% will die within 18 months of the event
  • For a 45-year old life expectancy thereafter was 78% of what might otherwise have been expected

Of course there are numerous other ways to become totally and permanently disabled, and each will have their own impact on life expectancy. The question of survival will affects the interaction between life insurance and income protection.

The issue to consider with regard to life insurance is a high rate of death after the incident causing the claim: A high rate of death means that you can view the additional payment for total and permanent disablement insurance as a premium merely to advance the payment of life insurance by 18 months, for example. That must be considered in the context of a terminal illness benefit which might advance it by 12 months anyway.

On the other side of the coin, a very low rate of death affects the interaction with income protection. It suggests that in any tradeoff a reduction in TPD for an increase in income protection would be valuable. However, ideally, long term disability results in capital costs and the ongoing need for income. Therefore if budgets allow then TPD and income protection are desirable.