The Code Working Group has established a blog available here. The first blog item comments on the development of the Code, with this first blog titled “Draft principles after the focus groups”. The blog also indicates that the first public consultation paper will be published in early 2018. Note that you can also subscribe via a link on the right of this webpage to receive further updates from the CWG.
This article on goodreturns has some gems. The most important comment of all is that filling in the form for the client, as you read questions and they answer them, is a 'known risk'. The most common form of complaint about insurance is disclosure, clarity about who made what disclosures is vital. Filling in the form at the client's direction does not help clarity - although it can be useful, especially for clients that have some difficulty with comprehending the questions and writing the answers. Later in the article the comments about helping clients to understand their duty of disclosure are helpful. When friends ask about it, or the subject comes up when meeting advisers, I have a good example: me. I have asthma. This happens to be almost perfectly calibrated medical problem for explaining disclosure. If I didn't disclose it, and then had, say, a heart attack, I might find my claim declined. But I did disclose it, and because my asthma is well managed and not too severe, my cover includes it at ordinary rates - and I have no need to worry about the potential claim. You probably have other examples from clients you have met. I reckon it is always useful to have at least one, good, example ready to talk about.
Panel session at the FSC Navigating Change Conference. Sharon Corbett, Principal Policy Advisor, MBIE, Nadine Tereora, CEO, Fidelity Life Angus Dale-Jones, Chair, Code Working Group, and John Botica, Director of Market Engagement, FMA.
Angus Dale-Jone, Chair of the Code Working Group, said that whenever they consult on the draft Code people want to ‘go straight to competence’. He then went on to highlight the importance of advice process, and also the issue of how advisers are incentivised.
If I had to guess, I would say AFAs, already under the Code, would be those more concerned with competence requirements. Those that are RFAs, would be aligned with the concern about advice process and incentives - and their concerns are likely to be in tension with those of the Code Working Group. Angus also reiterated a comment he has made previously that there are more than one way to deliver good quality advice - and not to expect a ‘phone book’ full of rules. That suggests a continuing commitment to a principles-based regime.
Nadine Tereora talked about advisers being ‘process fit’ and encouraging advice businesses to get to work and embrace the likely changes.
An excellent question from an AFA was about recognising that they had just gone through relicensing through to 2020, and will pay a fee during the coming year, and would that be taken into account?
John Botica’s answer focused on fees, which is probably the easier part of the response. Still good to hear that current fees would be taken into account. The other part of the question will turn on new requirements for competence and transitional arrangements for the same, set by the Code Working Group.
Smaller advice businesses, and that is most of the market, may be encouraged by John Botica of the FMA stating that the licensing process will not be skewed towards the ‘big end of town’.
On discussing consultations on the disclosure regime Botica highlighted feedback that disclosure processes that currently apply ‘don’t work, for you, or for your customer’. I am presuming that this refers to feedback from AFAs, and broadly, agree.
Botica gave some estimates for the number of RFAs that are self-employed, or are employed by corporates. But these were based on AFA’s falling into each category. Whereas a high proportion of AFAs are employed by banks, with RFAs the numbers are, probably, quite different. The answer must be qualified, because the current register is unhelpful (because of either a lack of information, and many non-active entries).
Other comments covered the forthcoming consultations on Code and fees. Useful encouragement was given to advisers to think about:
- Reward structures, payments, and how to manage conflicts
- Products, services, and customers
- Right-sized governance and compliance arrangements
- Processes that ensure you consistently recommend to clients
There is much current material to help RFAs endertake these tasks. While on the one hand delay and uncertainty about timelines may be frustrating but on the other hand, if you are an advice business focused on the sale of insurance - whether a self-employed RFA or a larger advice business - then there is much work to do and the extra time is valuable. I suggest reading the following as a start:
Let's not reinvent the wheel. In order to first challenge what exists, I must first try to understand it - at least as context. Preferably as part of a tradition of development in our field, which is the provision of excellent risk management within the scope of personal life and associated risks. Building on what we have enables me to make better decisions about what is required. Seth Godin has an excellent piece on this. That's one reason why I am looking forward to some extra reading time over the coming holidays. Anyone with recommendations for holiday reading that is connected to the financial services sector, I am keen to hear from you.
Sharon Corbett - speaking for MBIE - at the FSC conference, Navigating Regulation, highlighted the following as reasons for the new law:
Lack of personalised KiwiSaver advice
Confusion caused by different regulation for different types of advice and adviser
Need to broaden the law to manage advice provided by robots
In highlighting the form of the changes, Corbett was concerned to point out that it would not mean the end of differentiation. That licensing would deliver efficiencies, but that the single adviser business could still get a Licence.
Of course, scale has always been a factor in the advice sector. But I think it is set to rise. What our legislators and regulators cannot change is that increasing regulatory standards must necessarily increase costs, and/or, investment. The technology trends that they identify do the same provided that they work, even for advisers that choose not to adopt technology.
The timeline news is, as we expected, that the FSLAB is much more likely to be passed at the end of 2018. Corbett added that the time allowed for transitional arrangements would not be compressed.
This article on interest.co.nz shares the view of the new Commerce and Consumer Affairs Minister Kris Faafoi on plans to revamp the current insurance law. I was initially pleased with this article, and tweeted to that effect, but I was focused too much on the headline. The Minister says that Insurance Law Reform is still in the plan, - but not until he's dealt with some other things on his agenda first. One of my colleagues described this as 'How to positively commit to doing nothing for a while, even while acknowledging the need to do something…' The article includes a video interview with Faafoi.
Here's a thought from Max Roser's Our World in Data. Infant mortality has declined dramatically since 1950. He points out that no country today has a child mortality rate as high as Portugal had in 1950. Furthermore, Portugal now manages a child mortality rate 40% lower than we do in New Zealand, and has sustained that for several years. Maybe we could learn something.
I've also included Papua New Guinea for context. Just in case you thought this was all about technology and that, maybe, government policy did not matter - click on add countries at the bottom left of the chart and add Cambodia for a dramatic example.
Of course, if you don't like being happy - you can focus on the huge problems facing the world and confront the sobering reality of what's required to avert death by overheating the planet.
For those of you who missed it, below is our quarterly newsletter, which we sent out on the 14th. If you would like to receive the newsletter every quarter - which handily narrates recent events and trends, and also includes links to the most popular items from the blog in the last quarter, then enter your email address in the form at the top of the page, second column from the left.
The insurance industry is re-organizing to face the challenges of digital disruption. Sure, you might say that banks selling their insurers (like CBAand ANZ) is about risk and the need to allocate capital to banking, rather than insurance, but I look at that differently. While insurers were a reasonably safe bet, the capital requirements were not considered onerous. Now they are.
What happened? Returns fell, partly, because of claims problems in Australia, distribution problems, and higher lapses. As analysts looked closely in an effort to understand what was going on, the insurance sector came under unprecedented scrutiny. The look forward offers a stark choice. The current model is under threat, and whatever your view of the future model - a “Fintech future”, or a re-engineered sales model - you have to have some increased stomach for risk. Even without making many life insurance sales, digital disruption has had that effect. It has made shareholders sufficiently worried about, say, traditional Bancassurance, that some see more risk than opportunity.
Meanwhile, the fundamentals of the industry remain strong, which explains why others see more opportunity than risk. That’s the other side of the deal. For every TOWER Life and Health, and OnePath health, there has been nib or Fidelity Life. For CBA there was AIA. For organic growth opportunities Partners Life and Fidelity Life have found willing investors to match their appetite. For every exit, there has been an eager replacement. The life market is attractive, so long as you don’t mind risk.
That being the case, those focused on business as usual have had a busy quarter as well. One advice business that we have been working with has trebled revenue over the last two years with no increase in staff: automating advice processes was the central enabler of that achievement. There has been the Aspire Conference by Gen Re. There has been the FMA update on robo-advice exemption. That's a pathway to a more efficient future. Some feel that was another gain just for the 'big end of town', but I don't.
Many tech companies will happily help you automate a current process, but the real gains come from reimagining the process before you take it to a new platform. Having a multi-disciplinary view of the value chain enables this process re-engineering to be more robust and outward looking.
Regulation must be one of the more exciting categories for development: making the old-and-complex into the new-and-easy is the main value-add offered by most Fintech companies. That is a directly transferable skill to tackling the costs of regulation.
Quotemonster is an early form of this which is why I am pleased at the support from recent news like this complaint ruling.
So, advice process, process re-engineering, and regulation tech look to me to be the most profitable areas of growth potential in our new environment. Having effective strategies in each of those areas should offer you a lot more confidence to weather the coming disruptions.
Which brings us to regulation technology in New Zealand.
There are lots of emerging solutions in ‘know your client’ and AML-CFT. These span data sources, process advice, audits, and operational solutions that can be connected through API to enable your process.
There are some statement of advice builders - a number of solutions that have emerged, sadly few of these are great. The best are designed specifically for insurance - and most are adapted from investment. There is great opportunity in this area.
Live stream reg-tech - such as testing goals against recommendations is a great antidote to the problem of trust - by actually testing advice as it's given. If that seems too much like science fiction - give me a call.
Here is one lady's story of how she can no longer afford dialysis treatment and that Medicare will no longer pay, therefore she has accepted that she will die. Click here to watch her story.