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Disability Income Additional Features Review

A review of the weight assigned to add-on features such as childcare, travel, TPD, Trauma, future insurability, and wait period reduction is going to be conducted by Quality Product Research Limited. We are interested to establish the extent of use of some of these features to help determine the right weight in the claim model over the coming year. We are keen to hear from advisers with case studies of the use of these features. Please drop us a line. 

Does Financial Advice Suffer a "Plague of Inconsistency"?

An Australian systems provider believes that financial advice in that country suffers from a 'plague of inconsistency' and they might be on to something, although they are talking about superannuation savings, mainly, so we won't use their specific examples. 

On the pathway to professional advice we have the professional associations, some financial advice research, and our regulators lining up on the side of the six step advice process, or at least, something like it. The first problem of inconsistency is that this process isn't followed by many advisers. Lots of people a client will see when they go to get KiwiSaver, general insurance, and life insurance won't get a six step process. Lots of variations exist, but mostly, it is because they aren't offering advice: from banks to online sites, no advice. Many RFAs that are offering advice will not follow the six step process. 

Then, even among those that do offer a six step process, there is a lot of inconsistency in the approaches taken. I have less problem with that, but it is worth considering. Differences in advice process between advisers are understandable because of different advice models. Differences between clients understandable because of different requirements. But the last challenge to consistency is this. If the same adviser, met someone who was, effectively, the same client, with the same circumstances, on different occasions, would they offer the same advice? 


FMA To Get A Budget Boost

Investment News New Zealand reports: 

The Financial Markets Authority (FMA) emerged as a big winner in last week’s budget with an almost 40 per cent bump up in its operational allocation.

However, more than 70 per cent of the FMA’s $36 million government allowance will be funded out of a forecast $25.78 million levy on the industry it polices. Last year the FMA had to scrape by with about $26 million of which $17.4 million (about 66 per cent) came via industry levies.

Licensing and enforcement get the biggest increases when viewed as a percentage of current budget. More on this story at this link

HFANZ: Huge Health Funding Boost Welcome

HFANZ Media Release:

May 25, 2017


Huge health funding boost welcome

The huge boost to health funding in today’s Budget has been welcomed by the Health Funds Association (HFANZ).

HFANZ chief executive Roger Styles said the significant funding increase was driven by demographics and population growth, although warned that we shouldn’t expect that level of increase to be sustained year on year.

“New Zealand’s health system has become more heavily dependent on public funding than most in the OECD, but we know the Government can’t afford to fund everything. The private healthcare system plays a significant role, but could be doing a lot more alongside the public system to relieve pressure and help lift overall health outcomes,” he said.

“A more collaborative approach to planning is needed so we can make the best use of both private and public funding sources and deliver New Zealanders the best healthcare possible,” Mr Styles said.


Action on Disclosure Law Promised

Jenée Tibshraeny, Journalist, at interest.co.nz has a good article on promises to update disclosure law

    Jacqui Dean has told interest.co.nz she’d like to “commence work on a significant package of insurance contract law reform in 2018”.

This is likely to add to a relatively busy period for law and regulation for insurers and insurance sales. The Financial Services Legislation Amendment Bill has been getting most of the spotlight, but there is also the review of the Insurance (Prudential Supervision) Act being carried out by the Reserve Bank (update here), and now the promise of insurance contract law reform. 

Insurance law is rarely updated, so why now? The IMF report on Financial Sector Stability identified the insurance market as an area in which there could be improvements in insurance market conduct. Some aspects of that criticism touched on the activities of advisers, but changes to advice law in the new Amendment Bill already have that area covered - requiring adherence to a new Code of Professional Conduct and giving the FMA much more power to manage conflicts of interest. That left insurer's conduct obligations, which were also picked up as an issue in the report. But international reports are rarely so quickly turned into action. We think that local pressures pressures for change are more significant:

  • Conduct has been a big focus for the FMA recently, so officials would have echoed the IMF report's call for better management of market conduct. 
  • Disputes resolution bodies (the ISO and FSCL) have a modest, but persistent, flow of complaints that relate to non-disclosure. There are certainly more that we are unaware of, as some people simply do not complain when their claims are rejected. They have been highlighting the issue of the disclosure law for a long time.
  • There have been a very large number of claims for damage arising from earthquakes and lots of publicity about complaints relating to delays, settlements, and denied claims. So for once insurance law reform may actually be noticed, and desired, by lots of voters.

The example of material non-disclosure in the article relates to a life insurance case, rather than fire and general, where most recent complaints probably arise. A further nuance to the example is that it depends a lot on what kind of application process there was. Most (functionally, all) fully underwritten life products would have asked a question about the back injury, so it would have to be more than an accidental omission, the client would have had to either lie or have forgotten. But when the application is a ‘short form’ or if there are simply no health questions because it is a ‘guaranteed acceptance’ product, it would be easy for clients to make the non-disclosure along the lines suggested in the article.

For most insurers, who are paying these claims, the change to disclosure law will not be an issue. Their parent companies in Australia and the UK are typically already working under these regimes. The low level of complaints (relating to life insurance) indicates that there cannot be really large volumes of claim declines. But the change would still be significant enough to be welcome, because a functioning insurance market relies on confidence, and confidence in claim payment most of all. What the consumer gains in confidence is a direct gain to the industry as well - it will result in more policies being purchased from insurers. Advisers should also reflect that it will reduce their advice risk around non-disclosure complaints. 

Of course, no final judgment can be made until we have the draft law, but this could be good.