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Partners Life reverse waiting period for self-employed clients, and more daily news

After making changes to underwriting guidelines for self-employed customers earlier this year Partners Life received feedback that they used to further improve processes. Adviser feedback focused on the 4 week waiting period for Income Cover, Mortgage Repayment Cover, and Household Expenses Cover.

“One of the changes we made was to restrict the waiting period options to only 4 weeks for self-employed clients across these products. This change was designed to facilitate early engagement with claims case managers when a self-employed customer had become disabled. We determined that longer waiting periods would make early intervention and return to work management much less effective.

While we still believe this to be the case, we also understand that forcing a shorter waiting period onto customers can impact on affordability and can also cause issues for advisers when trying to combine business cover such as Loss of Revenue with personal income protection products. In addition, we appreciate that shorter waiting periods do expose us to more claims because we get all the shorter ones and we pay more for the longer-term claims (because we start paying sooner).


We know from your feedback that this restriction of waiting period choice has been a significant issue”.

Based on the feedback received, Partners Life are implementing the previous waiting period effective July 23, 2020.

“In response to your concerns, and because we believe our other changes will provide enough of the protection we are seeking, we are reversing the restriction on waiting period options for self-employed clients with effect from Thursday 23 July 2020.”

In other news:

The Insurance (Prompt Settlement of Claims for Uninhabitable Residential Property) Bill was read a first time in Parliament and referred to the Governance and Administration Committee.

Department of Internal Affairs: Department of Internal Affairs released a summary of its AML/CFT findings in relation to the legal sector.

Financial Advice: Financial Advice New Zealand Free Webinar Series


COVID-19 and the insurance industry outlook - no, it isn't over...

In April almost everyone I know became an amateur epidemiologist, or at least, COVID-watcher. Today, many of my non-insurance colleagues are blessed with an almost-normal life. We have been fortunate - meaning it is vital to acknowledge that good policy and a little good luck, brought us here. The industry, however, has to take a slightly longer view. So what does COVID-19 mean for us now? 

On a cases per million bases I chose the following visualisation to help show where New Zealand is positioned, and just how fortunate we are. The US and Brazilian data shows how a badly managed response looks. No detailed critique here, you can find plenty elsewhere. 

The World detail in this chart is deeply suspect data. Some countries are so poor they have inadequate resources, some are so badly managed the data is deeply flawed, some are merely bad at testing. Germany shows how a poor start can quickly be converted into a good outcome - on a cases per million basis it is now doing better than Australia which is battling a resurgence in the disease. 

Removing the US, Brazil, and World, allows us to zoom in on the better performers: 

Australia's resurgence is instructive. It proves several things - given that the Victoria outbreak came from badly managed isolation, it was right that media were highly critical of security breaches. Given that it has happened it is right that government has been slow to create travel bubbles. Australia shows how fragile our position is until there is better news on the vaccine front. The longer we can contain the virus the better our chances get. I am still using the much maligned contact tracing app and signing in where I see the forms - even though most people aren't. Why? if someone breaches isolation and there is an outbreak that data is our best chance of avoiding a nationwide lockdown, again, which is proving so damaging to Victoria.

Removing Australia allows us to zoom in again on the best performers (setting aside China). To further reveal differences, I have switched to a log scale: 

 

Japan is battling a resurgence too, not at the level Australia is, but still ten times as many cases as we are managing (all in isolation). South Korea sits in between, just a little worse than us, but with those cases also being in well managed isolation, like ours. Taiwan has half the cases that we do on a per million basis. Vietnam, functionally none - both would be great places to travel agreement with!

For the insurance industry, whole of pandemic modelling remains a concern. A worst-case scenario would commence with a resurgence along the lines seen in Victoria, which breaks out into general community transmission. Choices we make today, could help. During lock down I cursed myself for not preparing better - but how many of us are wearing masks, even if just when we have a cold? Very few, and those are Kiwis with links to China, Taiwan, Japan, or South Korea. How many of us are contact tracing still? Few, yet that data could have helped Victoria avoid a second lock-down.

It is complacency which would undo all the good work of the team of five million, some of whom are hurting a lot from that sacrifice.

There is good news from the UK, US, and China, about potential vaccines. But the disease is still out there waiting for us. If we are to avoid thousands of deaths then we must remain vigilant. That is not a job solely for the government - it includes us. 

Even if we continue to track along the 'best case' scenario - cases only in managed isolation, and reasonably quick economic recovery, we can expect a fair measure of misery for those worst affected: lost jobs, lost homes, and disrupted lives. Those tend to have claims effects - IP claims last longer, trauma claims are deferred, some turn into life claims. 


But are they just little lies?

Stuff has this great article by Nile Bijoux about people being willing to lie to their insurer. Those are general insurers, but it seems a stretch to believe that the same people happy to lie on their car insurance application would suddenly become gravely honest when filling in a life application. Perhaps people don't really think of lying to their insurer as a big deal - so many do it. This is borne out in other markets too - in the UK it is estimated that it adds the equivalent of about $60 a year to every insurance policy. If that margin were applied to the 2.5 million life, trauma, IP, and TPD, policies in New Zealand it would mean about $150 million in fraud costs each year. 


It's great information, but it isn't financial advice:

I was asked by a compliance guru at one of the insurers about Quotemonster, and in particular Quality Product Research, and how that relates to product selection, and whether you can rely on it as information from a third party as the Financial Advice Code requires. 

You can rely on QPR to be a good assessment of differences between products, compare prices accurately, but it isn’t giving advice, only advisers do that, given their superior knowledge of the client. Research reports on products are there to help inform good advisers, not replace them.

Incidentally, in a related subject - Quotemonster is not a record-keeping system. It is a comparison system. Although we retain comparisons for your convenience, and so you can replicate similar comparisons, it is, obviously, not a CRM system. 

Our comparison business is to help advisers.


Partners Life: self employed wait periods change

Partners Life has decided to allow a return to permitting wait periods longer than four weeks for self-employed clients. From their email announcement yesterday: 

One of the changes we made was to restrict the waiting period options to only 4 weeks for self-employed clients across these products. This change was designed to facilitate early engagement with claims case managers when a self-employed customer had become disabled. We determined that longer waiting periods would make early intervention and return to work management much less effective.

While we still believe this to be the case, we also understand that forcing a shorter waiting period onto customers can impact on affordability and can also cause issues for advisers when trying to combine business cover such as Loss of Revenue with personal income protection products. In addition, we appreciate that shorter waiting periods do expose us to more claims because we get all the shorter ones and we pay more for the longer-term claims (because we start paying sooner).

We know from your feedback that this restriction of waiting period choice has been a significant issue for you, and we want to make it as easy as possible to choose Partners Life as a solution for your customers.

Thank you for giving us your feedback - we know you have done so because you want Partners Life to be the best we can be.

In response to your concerns, and because we believe our other changes will provide enough of the protection we are seeking, we are reversing the restriction on waiting period options for self-employed clients with effect from Thursday 23 July 2020.


What chances for subsidised health insurance?

Grey Power and NZFirst are trying to put the idea of subsidised health insurance back on the agenda - refer this article in the NZHerald, by Nicholas Jones (if you have a subscription). 

The rationale advanced is that a person buying their own health cover is reducing the burden on the state health system. That is true when a hip operation is done at Mercy Ascot instead of Auckland Hospital, but it doesn't apply to all services. Many primary services are just not offered by the private sector.  The other is that the insurance and rebate approach really comes unstuck for the highest cost groups - including the elderly. Their care is massively subsidised by the rest of us, it has to be: something like 50% of all health costs can be consumed by a person in their last years of life. Modest rebates for older lives are really unlikely to make much difference either way to this equation. 

 


Industry participants react to gastric cancer claim denial, and more daily news

Ailepata Ailepata’s gastric cancer claim denial as a result of a New Zealand Home Loans broker suggesting Ailepata change insurers has caused division within the industry. While some have sided with Fidelity Life’s decision to deny the trauma claim, others have contested the decision. Tony Vidler described the incident as a shocker and hoped it would highlight the duties of advisers by stating that advisers need to act as front-line underwriters since they are better judges of insurer criteria than clients. 

“Vidler said: “Clients often, with the best of intentions, tell you everything they think you want to know then later say ‘I didn’t think that would matter. A doctor told me I needed to get my blood pressure under control 17 years ago but that doesn’t matter, does it?’

Clients were in a poor position to judge what would be important to an insurer, he said, and it was the adviser’s job to step up.

“I always take the view that the adviser should be the frontline underwriter … if there’s any doubt or questions you’ve got to draw attention to it.”

If there was a concern about something from a client’s past, the adviser could suggest the insurer requested medical files, he said.”

Katrina Church has stated that they isn’t enough information to condemn the advice provided to Ailepata Ailepata by the mortgage broker. Instead Katrina said that in her experience clients don’t usually understand their disclosure obligations. While advisers work to minimise risk of each application but she suggests that advisers consider the question do clients understand what they have to do when applying.

“Church said there was not enough in the articles written about the case to condemn any adviser. “My experience is most clients don’t truly understand what their obligations regarding disclosure are. And as advisers I would ask do we do enough here to help out clients? Are we training this as well as we can in the industry?

“Advisers are the first underwriters and we should do all we can to derisk the situation for clients – this is something that online or applications made direct to providers can't. That’s our point of difference. 

“Advisers should be thinking, is this client really understanding what they have to do when they are filling out this form? That’s the first thing. The industry could do better, insurers could do better.” Click here to read more 

In other news:

Financial Advice: Financial Advice formed a group called Corporate Associates

Financial Advice: consultation of the Trusted Adviser mark closed July 22 2020

Financial Advice: Applications invited to be a Corporate Associate

FMA: Kiwis confident financial markets will recover from COVID-19, plan to increase investments


Fidelity Life appoints new head of adviser distribution

Todd Allan has been appointed as the Head of Adviser Distribution. This promotion comes after the departure of Craig Winterburn, who was the General Manager Distribution. In his new role Todd will be focused on supporting advisers.

“A key focus for Allan and his team of business managers and business account managers will be supporting advisers through a period of change.

“The new financial advice regime, conduct and culture changes and, more recently, Covid-19 are all having an impact on our business, our distribution partners and the broader industry.” Click here to read more

In other news:

Adviser stops scam: Saves client $60,000 - and excellent example of a vulnerable client saved by good process

FSC webinar: Get In Shape Session 5: Hear directly from the Government and regulatory leaders delivering FSLAA

FSC webinar: FSC Connect - Insights from Journalists and the Media

FSC webinar: Get In Shape Session 6: An opportunity to redesign your advice process


What is wealthy in New Zealand?

All this talk about wealth taxes led Susan Edmunds, a regular writer in financial matters, to explore the subject. Her excellent article is at this link. 

The taxes proposed by the Greens would be as follows:

  • Under $1 million – Tax rate 0% 
  • Between $1-2 Million – Tax rate at 1%
  • Over $2 million – Tax rate at 2% on the value over $2 million

The Greens also propose that someone might be able to defer the taxes until death where virtually all the wealth is held in the property.

The question of whether a million dollars is wealthy requires some examination. One aspect of the question that keeps getting ignored is age and stage. Take these examples: 

  • My daughter is 20. It really doesn't matter that her net worth is negative and getting slightly worse right now: that's student debt. Trading money for a good education is a pretty good bet. The odds are that over her working life her degree will add to her income considerably. I asked her recently whether she would like access to the account we have with money in it for her uni education, she told me not to let her because she'd just spend it. Self-knowledge is a wonderful thing.
  • Consider a recently retired widow of 70 has just lost her husband. She owns a home in Auckland that is at about the median value - $850,000. Due to good saving habits and some life insurance she has a lump sum of $800,000 too. As a single person with wealth of $1.65 m she would be expected to pay the new wealth tax. This is how that works: term deposit rates are at 1.6% right now. Inflation is 2.5%. As her wealth falls between $1m and $2m, she would be taxed at at 1% on $650,000. The purchasing power of her capital (above the $1 million threshold) will now reduce by 1.9% a year - and she hasn't even spent a cent - add a withdrawal rate of about $40,000 per year to supplement her superannuation and wealth will decline quickly in the current low return environment (which looks like a sustained period). 

A big issue around wealth taxes (and capital gains taxes) is complexity, i.e. – identifying what is taxable and constantly having to value it. Then there is the question of having to find or release cash every year to pay for it (hence the reason most capital gains taxes are only payable on realisation).

In our business, views differ on what would be more efficient. Some prefer no additional taxes, some prefer a land tax to help address the current tax imbalance around property gains, while others prefer a capital gains tax. Still others say the focus should be on changes to reform tax to reduce carbon dioxide and other greenhouse gases. Both of the last two might help cool the housing market.

But I digress: people at different stages in life have different needs, if we don't take that into account, then we will miss the target of helping people that really need it. Of course there are people we should spend a lot more time and money helping. Regular readers of this blog will know my views on, say, helping those with mental health issues, preventing workplace accidents, and reducing suicide. We could do with better housing stock, preferably, by putting up a few more houses. 


On not giving advice

Tony Vidler posted a great article on not giving advice. The essential premise is that the client may not want you to give formal advice - or even informal advice - but rather, simply act as a good sounding board for their own decision-making process. This connects strongly to my lived experience. Accountants, lawyers, fellow consultants, have all performed at their best when avoiding the quick move into the prescriptive, the planning, and the acting space. Not always, some times speed is vital, but not nearly so often as it is supposed. More often, asking good questions is the foundation for better decision-making - and not all of those decision have to be made by the adviser. In fact, the decision a client has the most emotional commitment to, is the one they choose through a guided discovery process. They appreciate the guidance, they know the discovery would not have been made without the presence of the trusted adviser. They really own the choice. How do I know? Because I have been in the place of both the client, seeking help in my own business, and the adviser, helping others with theirs.