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Cavalcade of Risk

I am running the Cavalcade of Risk next week, a review of recent posts by risk-focused bloggers from around the world. I know many of you have strong views about many aspects of risk management in general and insurance in particular. So... Why not pick your favourite subject and write between 300 and 3000 words on it? Alternatively, if you have seen a good report, data source, or opinion piece on the subject then send me a note of it and I will include it in the Cavalcade. Any questions, drop me an email.

Finding Answers in Unstructured Data

Yesterday I had lunch with the CFO of an innovative new tech company headquartere on the waterfront in Auckland. They have very interesting tech based on some work done out of the University of Waikato and the University of Swansea. I've been both to the Waikato and Swansea, and while I am sure they have their strong points they do have something in common: either they wonderfully concentrate the minds of some of their students on the beauties of the intellectual world, or Rugby.

The clever stuff this outfit works on is about enabling information retrieval from unstructured data - all those reports, powerpoint, word, and PDF docs that are lovingly crafted by eager middle managers. Often expensively-created insights are found, emerge briefly into the sunlight of management attention - and then slip away again to the loss of corporate memory.

Our experience with insurers is that there is lots of unstructured data knocking around which could do with some smart analysis and treatment.

Put the product plug to one side - what about the business? A clever tech business, HQ in New Zealand, with a global offering already being picked up by distribution and systems partners all around the world. Go and check it out just to remind yourself that yes, Kiwis can do this.


Customer Experience

This is a powerful article on customer experience. The sentence that brought me up short was the reference to health insurers and credit card companies being amongst those listed as having the worst customer service - that's in the US of course, but pause and consider: do you think ours will be rated an awful lot better? They might be, but, why, exactly?

It isn't always about sector, either, just in case you were about to suggest that New Zealand's health insurers don't operate in such a toxic health-care environment. One bank listed in the article is at the bottom of the rankings, while another is at the top. Something to do with customer service must be going on there.

Customer service is tricky to define, it is hard to understand what creates it, and then to organise difficult and often expensive parts of the value chain to actually deliver it. But it is worth it. Read the whole article.

Guide to Preparing for an FMA Monitoring Visit

I am just reading the Professional Advisers Association (PAA) guide to "Preparing for Financial Markets Authority Adviser Monitoring" another one in a useful series from the PAA. If you haven't see it nudge the nearest member of the PAA to let you have a look at theirs. You might also be interested in the RFA obligations to be found on the FMAs website at this link.

Income Protection: Amount Scores Details

Claims Model

After the definition of disability, the amount paid for a disablement claim is a very important issue to consider. Insurers must agree as they have produced a number of different products, priced in different ways, to allow for different approaches to payment. This paper is all about how we assess them – which was reviewed and updated during August and was published in the revised Quality Product Research update on 17 September.

  1. Our approach begins with a review of typical income protection claims. We received information from a number of insurers and also were given access to some reinsurance surveys of the income protection market.
  2. Then we constructed a model claim to act as a basis for making assessments. One model claim could be seen as a bit limiting – there are other types of claims that can occur for instance – we’re aware of this and, depending on the demand and feedback from subscribers – we plan to introduce the flexibility for you to vary the model claim in the future.
  3. Different parts of the claim are given “Amount Scores” these are simply the share of the total claim proceeds that attach to each form of payment – total disability, partial disability, and so on.
  4. We then vary the amount scores for more generous definitions and plans: such as booster benefits for partial disablement, the higher replacement ratio for Agreed Value, and for Loss of Earning the products with approaches such as paying 75% of the loss of earnings. For example:

TOTAL Disability: Approximately 1 in 5 claims is for an accidental injury. With an indemnity product at typical levels of income there would be no additional payment. With a Loss of Earnings contract 75% of loss in income would be paid: in the case of 80% income replacement by ACC a payment equal to 15% of income could be expected in addition. This difference accounts for most of the increase from an amount score of 54% for indemnity for Total Disability, and 61.6% for Loss of Earnings for the same item.

PARTIAL Disability: The differences between amount scores within the Indemnity product are usually related to the partial disability calculation. In several cases a form of booster is paid. Some companies charge extra for a partial booster (in which case it is rated as a separate item), others build it into the product; still others tie a ‘recovery benefit’ into their partial payment. The different amount scores for partial disability are shown on the table on the next page.

Additional Products Rated

We have just added the following Income Protection Products to the QPR rating system on www.quotemonster.co.nz:

  1. Asteron Loss of Earnings Plus
  2. OnePath Assurance Extra versions of its Income Protection products
  3. Sovereign Premier versions of all its Income Protection policies

We still have the “extras package” for Asteron products to be added when Quotemonster menu structure is next updated.

Amount Scores

Amount Scores

Base Model Claim: Income Protection

Base Model Claim

Explanation of Approach

  1. The claims model is based on the typical claim from a range of sources, Gen Re, some insurers, and some US centre for Disability studies
  2. Partial disability scores are 10% according to our claims model, but are higher for companies which have a partial ‘booster’ (see table).
  3. According to Gen Re there is a 1% higher replacement ratio with Agreed Value over Indemnity – no good third party data shows the typical replacement ratios for LOE when compared to Agreed Value or Indemnity. In the studies LOE is counted as an Indemnity contract.
  4. We therefore estimate higher replacement ratios for LOE options based on the following factors:
    1. Because LOE contracts will pay up to 75% of loss the effect of offsets is reduced by a third.
    2. Because Asteron’s LOE+ and Sovereign’s Premier version of LOE offer favourable definitions of pre-disability income on which to base the claim the value of partial disablement benefits and the value of offsets is further enhanced from the client’s perspective.

Quality of Financial Adviser Education

Goodreturns has a good piece on the quality of continuing professional development courses. On the other hand, many advisers will have fresh in their memories the poor quality and poor relevance of training that they did to obtain their level five qualification. We will need to move beyond a simplistic single measure 'quality' and talk more about components of the overall measure such as:

  • Relevance
  • Timeliness
  • Complexity
  • Materials
  • Learning environment
  • Teaching methods
  • Cost

One adviser might be complaining because the muffins were stale whereas another is more concerned about the academic bias against insurance.