« April 2013 | Main | June 2013 »

Scaling Advice

There is likely to be a lot more work to do around scaling advice, or limiting the scope of service. Over coffee this morning we discussed a number of ways in which scaling or limitation of scope can occur:

  • Consumer preference - limits placed on the process by clients. A client may retain a product that and adviser would not recommend, for example, but seek advice on cover levels.
  • Available product - there may simply be no effective product solution. Some advice may be offered, but it may be preferable for the adviser to limit the scope.
  • Segment - limiting scope to an area seems to be effective, for example: an adviser can clearly undertake to examine, life, health, and disability insurance, and recommend a referral to another adviser for investment business.

The tricky bit is when there is pressure to limit scope in other ways:

  • Insufficient information - the client does not provide all the required information. It may be possible to offer effective advice - or may not.
  • Simplified process - an attempt to offer a dramatically simplified process can come unstuck if it means ignoring issues which are essential to delivering effective advice

ASIC Is Investigating Churn

This article is about ASIC investigating the issue of churn. It seems there is much investigation to do, because although the article twice reports that regulation is likely, several things are missing:

  1. A definition of what exactly is meant by 'churn'
  2. How exactly that harms consumers, or under what circumstances
  3. How much of that is going on

Hat tip: Rob Dowler. You can read the entire article here.

FMA Statement of Intent for 2013

The FMA Statement of Intent (SOI) was released just a little while ago and our compliance guru, Rob Dowler, has been suggesting I write about it for a little while.

I commend it to any market participant, and at any market participant business any manager or consultant interested in how the FMA seeks to discharge its responsibilities. The SOI gives us a lot of useful information. While, obviously, focusing on intentions, in passing it provides some useful facts and figures. Here is one table which is particularly helpful when seeking to understand the market from a top-down point of view:


Market participants 2013

If there is one number that seems curiously vague it is the one for QFE Advisers. It is understandable that the number will fluctuate, and may not always be accurate, but I would have thought that QFEs would be required to provide a number at a point in time. Perhaps it will be available in future.  

David Chaplin feels that the number of AFAs is also interesting. It is lower than it was. He writes on what that tells us about the state of financial services in New Zealand in this piece published by The New Zealand Herald. Link: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10886680

But these are minor quibbles. This is a helpful document. You can grab your copy at the link below.

Link here: http://www.fma.govt.nz/media/1653254/statement-of-intent-2013-2016.pdf 

Health Insurance In The News

This article over at Goodreturns has attracted a lengthy trail of comments. It is worth bearing in mind that the article is just 280 words long and Hayden Jonas probably spoke for 45 minutes to an hour. It is unlikely, therefore, that the article has captured everything that he sought to convey. It is also unlikely, for example, that he would have made an unqualified recommendation of trauma / critical illness cover as a replacement for medical. It seems probable that there is some crucial context missing, and Susan Edmonds, the writer, did not include the comment as a direct quote. You can read the article and comments at this link.

Diana Clement on: "Insurance You Didn't Know You Needed"

Recently Diana Clement wrote an article in the New Zealand Herald titled "Insurance you didn't know you needed". The article covers a range of topics relating to third party liability insurance under dwelling and contents policies. Throughout the article Clement discusses numerous examples of claims that have been paid out for things most people are probably unaware they would be covered for. 

Click here to read the full article.

Chatswood Quarterly Newsletter

Here at Chatswood Consulting we send out a newsletter every quarter containing a range of topics covering the life insurance industry in New Zealand. Here is the last one we sent out a few weeks ago: http://eepurl.com/y0iQz

If you are not yet subscribed to receive these emails but would like to please email me on kelly.pulham@chatswood.co.nz and I will add you to the list.

Scope of Service and Defining the Insurance Review

Financial advisers selling insurance are beginning to explore in more detail the connection between scope of service, the service delivered at the outset, and the review. The subject came up during one of the panel sessions at the recent IFA conference, but it has also been raised at presentations with the FMA, and in other meetings too.

Most advisers know that the days of blanket statements like "I find the best insurance solution" are gone. Almost every service has limitations and those must be explained to the client in order to avoid misleading them. So advisers are using the scope of service definition to cover issues such as which companies products will be included or excluded, and then defining how they will arrive at their recommendation.

Now consider the scope of the review. Some general insurance advisers, with larger accounts, will 'take them to the market' every year: effectively re-writing the cover to find the best available terms and price from the set of companies with which they work. Because of the longer-term nature of life, disability, and health risks, that is rarely possible, and even if it were there are some significant costs and risks with moving cover every year. For trauma products it would leave most clients without cover - as for many conditions there is a six-month stand-down period from the date a policy starts to when a claim can be accepted. So we need to define a different form of review. Some suggestions from the discussions I have had with advisers are:

  • Alternate years - review only every two years
  • Split reasons for review: we review immediately if there is a change in client circumstances, but we only review the product every 'x' years in the absence of a change in client circumstances
  • Define 'mini' review which are about cover levels and options, and 'major' reviews which are about products
  • Performance-driven reviews - if a product falls out of our recommended list because it is now more than 'x%' below the a benchmark for product then that triggers a review for all those clients

I am sure other approaches can also be designed, and that the approaches should vary depending on the type of the client and the service offer being made by the adviser.

Highlights of the IFA Risk Masterclass

In roughly the order in which they presented, reviewing my notes these were the highlights, for me, from the different speakers at the risk masterclass.

Chris Louisson – always his strong commitment to consultative selling
Jeremy Bendall – a wealth of good information. The standard definition of risk management and the ways to make that real to the companies you talk with, as well as insight into the developmental stages of the kinds of companies advisers will deal with most.
Cecilia Farrow – who always refers back to hard numbers or research, demonstrating the rigour applied to the process at Triplejump. Also, her commitment to understanding how the client (business) sees the issues and their requirements.
Barry Read - when he showed me his worksheet for product provider selection, and we realised that he and I almost telepathically arriving at a virtually identical approach. You can scroll down a couple of stories and download my worksheet there. 
Richard Dean, of the Reserve Bank – the regulator, RBNZ gave us chapter and verse on IPSA and the importance of the Financial Stability regime. Some people are still genuinely surprised to hear that the RB regulates life insurers.

Kate Gillmore, of RGA – for explaining why insurance is so much more expensive than it is in Australia: reasons such as the health of New Zealanders, issues such as diabetes and obesity. As well as talking about the coming 'revolution' in underwriting with the prediction that “the memory test questions have got to go".
Adviser Contributions
On the importance of research, when the FMA reviewed his business one adviser said: "The FMA couldn’t see the research being done for that specific client. and why I chose that information. They were very interested in why I chose the providers I have."

Several others who raised the importance of making sure you look at the contractual and trust arrangements specific to each insurer's product because of non-medical product variations.
Much of the group who are already across how it is really important to have well defined reviews – and what we commit to do at reviews.
Another who pointed out that "there is so much change in small businesses that annual reviews are vital"

More Problems with "Hard Fees"

Neil Liversidge at UK Money Marketing wrote a great piece on some of the problems of hard fees, not least of which is credit control and the costs of actually collecting the fees once billed, including credit recovery and litigation. These costs are real and are eventually paid by all consumers of financial services, and so an important part of the consumer benefit of a commission-based system is the removal of these costs. Link.