Is this a taste of things to come? Link.
This story (by Rob Stock) has details of insurers of homes being urged to use higher cover levels in their cover estimate tools. This is eye-catching, as an example of managing client risks.
The issue is that insurers are trying to manage a shift in premiums upwards after years of undercharging and some big catastrophes. Setting the calculators relatively lower means that the price increase seems less bad, but the sums insured may not be sufficient - that's a risk - and it does seem to me that the calculators range from about right down a lower figure - I haven't seen examples where they are consistently higher. Some journalists and client advocates are suspicious: they feel that the insurers are planning to pay out less than is needed should a re-build be required.
But this is obviously self-defeating - insurers make no money at a zero sum insured. Recommending less cover is not in their interest. Instead we need to think about the sum insured-setting process.
It is more likely that insurers are trying to avoid the opposite risk: that they are accused of over-insuring their clients. Were they to err on the side of higher recommendations clients might feel that they are being rail-roaded into bigger policies and higher premiums. It is a far better dynamic to recommend a reasonable figure, but ask the client to check, and then for the client to request a higher sum, and for the client to choose to pay the extra premiums.
Maryvonne Gray contacted me to comment on the developing story of our general insurance industry's reluctance to participate in comparison websites. Link.
People do fritter away money on minor luxuries - coffee, entertainment, and so on. Fancy mobile phones are a favourite of mine, books I consider essential. However, many expenses are connected with the home. If you are attempting to help clients save and invest more, then advising them to spend less on their home can be a key strategy, which pays off in a number of ways. This article is a little US-centric, but illustrates the point well, especially if you replace "Home Owners Association" with "Body Corporate" in the NZ environment. Link.
What if underwriting were dramatically different? What if, instead of relying on an expensive and confusing patchwork of the faulty recollections of clients combined with the reluctant and sometimes enigmatic disclosures of doctors, and the rare use of of tests we could have a simpler, better way of assessing risk?
Well, over in general insurance TOWER Insurance has won the race to become the first local insurer to make use of telematics. They are using the direct collection of data from cars as they are driven to assess the driver's risk. Check it out at this link. The new system is called "SmartDriver".
Obviously the mechanism would be different in life insurance. But there are some candidates - the use of photographs, activity assessment, social media, and family history may help considerably.
It is a tricky job to get people interested in insurance. The usual approaches are fundamentally unpleasant - being based on fear. Usually either the fear of something bad happening: 'what if you get cancer?' Sometimes the little cousin of the same strategy is used: the fear that the insurance the client already owns isn't good enough in some way.
I always talk about insurance with friends and relatives because I want to know what they think about it, what they have done about risk management in their lives, and to generally learn about how they feel about financial matters.
I recently spoke with a cousin about their insurance. Once again - I should be used to it by now - I was surprised that he has life cover but not income protection insurance. I also learned that faced with the confusion and difficulty knowing what the meaningful differences are between insurance policies his primary basis for comparison is just price. That's typical.
I was tempted to blame insurers for the complexity of their products, but advisers have an impressive collection of differentiation tools at hand, and so do service providers in marketing and research like Chatswood and Quotemonster - so we can all accept our part and work on strategies to create more engaging conversations with clients. It isn't impossible: I demonstrated Quotemonster to my uncle and he was surprised at the different features (many of which are present in his cover in the UK, which I am visiting at the moment) and was drawn in to a rich conversation about his insurance by the weighting of items in the comparisons that we do.
That's a useful beginning to a discussion about an insurance programme - so using comparisons at the start of the sales process can work too.
This article on Life Health Pro, by Jason Claborn, is worth a look for anyone interested in the targeting of disability income cover. This sentence stood out:
"Approximately 70 percent of my clients are young professionals, mainly physicians, whose biggest asset is several decades of earning power ahead of them."
What that indicates is that the correct age profile for income protection is lower than the average ages currently being written - the motivation is to protect all that income that is needed to repay the high cost of education and large home loans common in the earl stages of career. Later, underwriting problems and rising wealth create more obstacles to cover.
An article on the cues retailers use to get you to open your wallet reminds me that the sales process is not as well understood in financial services: few advisers in New Zealand are as carefully crafting their office, presentation, promotions, and client communications to put their clients at ease, reassure, and communicate well with them. Link.
Michael West, in the Sydney Morning Herald, points the finger at betting agencies and asks whether they are, in effect, unfair marketplaces. I often bridle at comparisons between the stock market and betting, but given some of the poor investment 'schemes' of recent decades, and this allegations in this article, perhaps I should be more tolerant of the view. Link.
Investing can make you happy. Spending less than you earn can make you happy. Also, it isn't your level of income that makes you happy; it is your overall level of wealth that makes you happy. But not, interestingly, an absolute amount of wealth, or wealth relative to your neighbours - it is your level of wealth relative to your income.
That has impressive implications. Almost all people in wealthy countries (ours included) can access that kind of happiness. So even people on low incomes can enjoy a lot more happiness if they can find a way to save and invest - this great fact has been known by a few from direct experience throughout the ages. It is a view taught by the good folks in budget advice services throughout New Zealand, and around the world.
Also, one interesting little nugget is that increased saving, and therefore happiness, is strongly correlated with purchasing insurance.
Most good financial planners know it too. But sometimes clients can take a little convincing. Now you can be assured that some good science backs up your intuitive view. It is about 20 pages, but you should read the following: Link.