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Australia: Calls For Insurers to Fund Rehabilitation Expenses

AIA Australia has called for the government to make a change to legislation that restricted life companies from contributing to early rehabilitation and medical expenses, moving away from the current system where insurers are restricted to occupational rehabilitation rather than medical assistance. Click here to read more.

ASIC Takes First Action Against Adviser Based on Lapse Data

ASIC has taken accepted an enforceable undertaking (EU) from the first adviser picked up under its Life Insurance Lapse Data Project after finding he failed to meet his obligations in providing life insurance replacement advice.

There are a series of points discussed in the article about the failings ASIC identified in the advice given. Although we do not have the details, they do sound pretty bad, including:

  • Failing to consider relevant personal circumstances prior to replacement advice.
  • Failure to provide adequate replacement advice in the SOA
  • Advised purchasing cover that was too expensive
  • Failed to consider the impact on savings of placing life insurance in super
  • Failed to provide adequate information about the clients' circumstances in the SOA

Some implications for compliance process and systems are worth drawing out.

  1. This type of enforcement activity comes from data analysis, not from complaints. Customers that receive bad advice and don't complain may still be identified by an active regulator. This trend will continue as regulators find that 'human intelligence' is fairly slow and patchy compared to 'signals intelligence' where huge volumes of data can be analysed over time.
  2. It appears that there were client records - SOAs to look at, and so on - what failed was the content. Suggesting that either there was a lack of appreciation of the information needed to give good advice, or a failure to process and record that information. This appears not to be a problem with 'record keeping' it is a problem with 'advice-writing'. Storing what you write is easy, writing good advice is the hard part. I am going to blog on each of the points listed and discuss the advice process issues. Do contact me if you want to make comments or suggestions on them too.
  3. I actually like that there are two cost issues identified: the total cost of cover (see the reference to 'too expensive') and the cost of cover and its impact on superannuation. Although the latter issue cannot occur in KiwiSaver, total cost remains an issue. Some clients may feel unable to say 'no' to a persuasive adviser, and will take out cover that is too expensive for them, only to lapse it a few short months later. Having a good process around affordability helps every party to the transaction: the adviser, the insurer, and the client.

Click here to read more. 

Sovereign Appoints New CIO

Sovereign has appointed Shane Ohlin as Chief Information Officer (CIO). Most recently CIO at Paymark, Ohlin brings more than 30 years’ of experience and digital expertise to the role.

With a strong foundation in software, hardware and networks, Ohlin has held a number of senior roles at Telecom including CIO of Xtra, Head of Technology Strategy and CIO of the retail division.

“It’s a privilege to join Sovereign at such an exciting time for the company and its customers. I’ve been impressed with how customer-focused and innovative Sovereign is and I’m looking forward to contributing to the next stage of the company’s growth,” says Ohlin.

Shane Ohlin Sovereign CIO 2018 (002)

How Lemonade Focuses on Value to Customers

Here is the short version of my analysis of the way Lemonade has focused their offer on the things that will motivate customers to buy:

  1. "Forget everything you know about insurance"

    That's a promise to be different, cleverly playing on the low trust environment for insurance. It is a gamble, and must be backed up by what  follows. Lemonade can only get away with it, because they do back it up.
  2. "Instant Everything"

    Their tech means that you can get cover in 90 seconds and get claims paid in three minutes. If you want a benchmark for product development, you have it right there. Beat those two numbers and you have a winner. Why? Because life is short and apart from a few sad individuals (like me) no-one is so interested in insurance that they want to fill in a 2, 12, or 22-page form. No one really wants to read a 2, 12, or 150-page policy document. Consumers are just not that into us. Making everything "instant" is also a testable proposition. It's almost a dare: we bet we can move your insurance fast. The consumer can see if its true - but only by starting. When was the last time you heard an insurer bragging about how quick they do things?

  3. "Killer prices".

    This is a testable proposition as well. Most consumers can spot the lower number out of two. Price can be a curse, of course, but right now Lemonade is bound to lose money, so you might as well lose it with more clients than with less. The consumer is up for this too, surprisingly. The unfair advantage of the upstart? Sure, but Lemonade is also betting that by automating everything the marginal costs of acquiring a customer can be kept very low, well beyond the start-up phase. In fact they reckon they are one tenth of the industry average.

  4. "Big heart".

    In a cause-motivated era the model of Lemonade, which states that after their share (20% of the premium) the surplus will go to charity. Warm-fuzzy emotional buyers can love the connection with their self-image. Cold-hard rational buyers can feel comfortable that the company does not have a limitless incentive to deny claims. It works both ways. Hidden in here is a promise about product, but it isn't presented in a technical way.

How successful are they? Very, but it is early. Like a lot of start-ups Lemonade is keen on rapid customer acquisition, and doesn't need to worry so much about profits right now. Its current customer base is obviously too small to support its infrastructure, so detailed financial analysis cannot reveal much at this early stage. Of course, some day, it will need to achieve profit, some day it will be judged on the same metrics as other insurers. But insurers choosing to comfort themselves with that line, and putting their own digital transformation on the same timescale - 'we'll do that some-day' should reflect that Amazon is over 20 years old, has intentionally tiny profits, distributes no dividend, and remains a decidedly different company to all the others. Amazon thinks of itself as a 'day-one' company, and intentionally works on a strategy of avoiding 'some-day'. Amazon are also interested in the insurance market. For New Zealand insurers today, with companies like Lemonade choosing to start in New York, rather than Auckland, you have a precious window in which to change. Lemonade has a few markets to go before it comes here. So does Amazon. But you may need every day's grace they give you.


RGA: the answer to digital disruption is engagement

RGA has a view on the answer to digital disruption. They feel that the answer is increasing engagement and they list a number of ways to tackle that are listed in this excellent article. There is gold in this list, and perhaps one of the best points is buried a bit lower down: 'leverage the data you have'. Insurers collect almost unbelievable amounts of data. I mean 'unbelievable' too. For clients that have never bought life insurance before they are usually astonished, and disbelieving, about the extent of the application form. Applications to borrow huge sums of money are usually shorter. But the sad fact is that most of that information will be barely glanced at, just once. For a few clients it will be studied hard - sometimes twice, but even more rarely, more than that. If the information could be used to connect better with the customer over the medium term, to achieve something of daily relevance to the customer, then they may be less inclined to cancel their insurance.

With wearables companies, focused on engagement first, their businesses seem to have developed almost the opposite way around. "Look at all this cool data we could give people!" Then, based on what they found, served to customers all the time, they gradually began to build business models. Of course, many of them will fail - and only a few succeed. Technology is littered with failures - consider the brief and beautiful explosion of navigation systems for cars, now mostly subsumed into Google and smartphones. Life insurers, who write contracts with promises to pay many years in the future, cannot afford to run with the typical start-up attitude. But they could pinch a few tricks from them which, I think, is the overarching message of this piece from RGA.

Meaning and insurance

Although life has many goals along the way, the goal of life as a whole is often too big to be considered. Yet most people hanker after some wider meaning. Whatever you do that gives your life meaning, if it is big enough, it has an effect. It's how you spend your time, and often, how you spend your money too. For many people it is family, or business, or a cause, or all of those.

When our purpose becomes so big that it has an effect on our financial lives, it usually shows up in our insurance plans as well: because most people want meaning to extend beyond their own lives. To have kids that grow up grateful for the work their parents put in, for their care, education, and the start they have in life. For a surviving partner to reflect that they planned and were taken care of by their spouse, especially to have space to grieve, or the resources to care for their partner, or children. If your insurance planning helps them to realise their meaning, its big. Probably big enough to provide you with meaning too. It's the purpose of the job.

Partly inspired by this post.

Winston Calls for Kiwi Insurance Company

In this Newstalk ZB report Winston Peters, Deputy Prime Minister, has called for a new government-owned, New Zealand Insurer. Peters is talking about a general insurance company, but before you consider the wider question - life insurance - Gerry Brownlee has points out that, in effect, NZ already has one: AMI, as a result of the bailout required after the Christchurch earthquakes.

If you apply the same logic to life insurance, the state already owns at least one of those: Kiwi Insurance Limited, part of the Kiwibank group of companies, is already state owned. Plus, the New Zealand Superannuation Fund owns a substantial stake in Fidelity Life Assurance Company.

There could be many directions of argument on the idea of a new general insurer, owned by the state. Although there strong strand of economic nationalism behind what Peters has said he might find that there are others that worry about the high levels of concentration of insurance brands under two large Australian-owned insurers. Those voices might welcome a new insurer joining the field. Still others might reflect that like-it-or-not government is always, kind of, the insurer of last resort, (for example - supporting AMI, running ACC and EQC) so acquiring still more risk might not be such a bright idea. The first step is to be clear about whether there really is a problem with general insurancee in New Zealand - what evidence of actual market failure is there?

Meanwhile, since we're on the subject of general insurance, the New Zealand Initiative has an excellent report on the insurance system following the Christchurch and Kaikoura earthquakes. You can find the report at this link, but here are three summary recommendations as they apply to private insurers:

  1. Government should follow through with proposed changes to insurance that make private insurers the first port of call for claimants in major events, but strengthen audit procedures appropriately;
  2. Government should quickly seek declaratory judgments in key test cases arising after a major disaster; and
  3. Government should consider mechanisms like the Reserve Bank’s OBR for failed insurers.

Sleep, diet risks, and building engagement with life insurers

Research conducted by scientists at Kings College in London examined 42 volunteers who had admitted to sleeping less than seven hours a night. Half of the volunteers were given sleep advice and asked to keep the same bedtime each night, stay away from caffeine and electronics before bed, be conscious about their eating habits so that they weren't too full or too hungry before bed and use techniques to relax during the evening as well as taking personal sleep counselling sessions. The other half of volunteers were not given any advice and only asked to track their sleep and food habits while keeping their daily schedules the same as they had before. Click here to read the results. 

Sleep advice, a key function of many wearables, provides a direct, daily, form of relevant engagement with a customer for many tech companies. That it is also closely connected with well-being, and the issue weight management, should make it an adjacency for insurers as well. With obesity being described as an 'epidemic' by some insurance companies, it might be an idea to connect with the daily habits that affect risk.