Goodreturns quotes The Australian and I saw a Reuters article today on the likely buyers for two of the largest insurance businesses in New Zealand: AIA may buy Sovereign, and Zurich may buy ANZ's insurance businesses. If true, this makes good sense for both. AIA achieves scale, which it did not have in New Zealand, and valuable additional size in Australia. Sovereign may benefit from being returned to specialist insurance ownership. The same applies for Zurich, and it will be interesting to have Zurich in this market. They may become an effective competitor in the adviser market in New Zealand with the purchase. That is, if the purchases go ahead.
Although I have a convention of tagging news from Australia in the headline, this post has a great deal of relevance to our market, as it accounts for the fact that insurers representing nearly half of the market are for sale. The AFR has a detailed piece which I will make a few quotes from below, but you can find at this link, on why they think that banks owning insurance companies has become a headache - hence the rush to sell them. First, the AFR says that the news CommInsure was for sale was greeted with indifference by the market because of the 'state of the industry, which has been hammered by rising lapse rates and more lately, soaring claims'.
Obviously, the situation in Australia has been quite different for a number of insurers, to the experience of the same brands in New Zealand. Sovereign is not CommInsure, Asteron Life in New Zealand contributes well to Suncorp's group profit. Overall lapse rates and claims performance differ between the countries, in part, for structural reasons. We don't have a lot of TPD in superannuation, which appears to have caused some particular problems in Australia.
The AFR went on to list the companies sold: NAB sold to Nippon Life, Macquarie to Zurich. Then to list those for sale - they name ANZ, the life businesses of Suncorp, and quote AMP as saying it is "open-minded" - although I always felt that's the proper attitude of any business, pretty much all the time. But because these businesses are often quite closely linked behind the scenes (systems, staff, brands, reinsurance, and more). Therefore, if the Australian business is sold, it is common that the New Zealand one goes with it. Not all businesses will be sold, of course. In addition, when a business is under review sometimes a bias towards a sale can uncover an opportunity to buy. But some transactions seem likely in the coming year. If the number was two, or three, it would represent an incredible period of change.
AFR then contemplates the question - how did it come to this? You can check out their full article for details, but two issues they list are worth contrasting with the situation in New Zealand.
The first is the ASIC report that "found 37 per cent of advice on life insurance was in breach of the law and almost half failed when high upfront commissions were charged". I read that report and it has some problems, small sample sizes, and arguable definitions of what constitutes 'failing' advice. But here in New Zealand we have an advice law which barely even makes the comparison possible. Since a written record of advice is not explicitly required under our current law it may not be possible to conduct the same kind of investigation here. But the FMA has gamely tried, and by analysing five years of data they have found a strong statistical link between incentive travel offered by insurers and higher new business and lapse rates. The insurer's might say, 'well that's what we were hoping for when we offered the incentive' but that brings us back to the quality of advice.
The second is the issue of poor systems - some so poor, AFR says, that they cannot provide good information, or hamper the ability of the insurer to report, or provide effective claims service. That sounds familiar too - and some of the systems will be common across the two markets. Replacing those systems requires new capital. So even after a transaction, that will not be the end to the change in the market. It will be the beginning.
There have been a number of updates done in the QPR database recently (QPRV104) and subscribers now have access to these changes which include:
- ANZ new policy wording added for Life.
- BNZ new policy wording added for Life, TPD, IP, and Trauma. Main change to heart attack definition for Trauma.
- AIA new policy wording added for Life, Trauma and TPD.
- AIA Business Life and Business Trauma Standalone reviewed (Accelerated is still under review)
Research on Quotemonster also reflects the changes with are applicable.
CBA, the parent company to both CommInsure in Australia and Sovereign in New Zealand, are contemplating a sale:
“We are in discussions with third parties in relation to their potential interest in our life insurance businesses in Australia and New Zealand,” CBA said
That comes quickly on the heels of the announcement that ANZ may be near concluding a sale of their insurance business.
There is a good article on Bloomberg from a couple of weeks ago, about the process ANZ is going through to offer the ANZ Wealth business for sale. The article lists AIA, Metlife, and Zurich as bidders in a short-list reduced from about five. It will be interesting to see who wins and whether the New Zealand businesses in the wealth category go with them. AIA and Zurich are both present in this market, of the two, AIA already has substantial life operations. Acquiring NZ life operations would create a business for Zurich, and add substantial scale to AIA. Of course, the New Zealand business could be retained by ANZ. We look forward to the announcement with interest.
We have just uploaded the Quality Product Research Limited database QPRV10.1 to Quotemonster and subscribers. This version included the following changes:
ANZ Trauma Cover:
Policy wording also updated to the most recent document in the database, standalone cover.
ASB Mortgage Protection Review:
Review & change made to Offsets / Mental Health Limitation / Partial Disability provisions
Enhancements of Trauma, TPD & Mortgage Protection for Business and Personal products (effective 19 June 2017)
Kiwibank Mortgage Protection Cover:
Product has been rated & policy wording uploaded to database
Westpac Trauma (accelerated only)
New score added under ‘Diagnosis & Partial benefit’ to capture ‘minor heart attack’
Sovereign Critical Illness
Updated pricing is being tested and will be applied to Quotemonster by tomorrow morning. The policy wording for these product enhancements has not yet been reviewed and will be reviewed and updated by 26 June, the QPR database will be updated again during that week.
There have been a number of changes to staff at ANZ Wealth and OnePath Life including a new Managing Director - Wealth, Craig Mulholland has been appointed the position.
Roharn Smith is joining the team as an Auckland Regional Sales Manager and they are recruiting for an additional Regional Sales Manager for Wellington to assist with South Island regions.
Vincent Bourke was welcomed to the underwriting team and Shelley Rider is moving from New Business to a Key Relationship Consultant role alongside Vincent.
From the latest adviser update from OnePath/ANZ:
ANZ announced its annual results today and our CEO, Shayne Elliott, took the opportunity to provide an update on the strategic review of ANZ’s Wealth businesses.
We wanted to share Shayne's comments with you. Shayne said ANZ is exploring a range of possible strategic and capital market options for the future of the Australian Wealth business which includes the possible sale of the life insurance, advice and superannuation and investments businesses in Australia.
Shayne further said the position of the Wealth business in New Zealand will be considered separately during 2017.
While it should not be seen as a given that the New Zealand wealth business would be sold, if a purchaser of the Australian wealth business wanted the New Zealand operation then it would seem logical that they would have a good opportunity to acquire it.
A New Zealand couple living in Perth have taken ANZ to court for selling them life insurance which excludes payouts to Kiwis who are not citizens. Mr Cairns took the issue up with ANZ after an adviser discovered a clause in his policy document barring them from any payout because they were not citizens or permanent residents. Mr Cairns has had all the premiums refunded, and ANZ has changed the terms of policies as a result of the discovery. Cover for New Zealanders is being resrospectively added to contracts. However, Mr Cairns had a stroke during the policy and can now no longer obtain cover. Although offered another policy by OnePath he states that this would have required him to remain silent on the issue. Clearly it has not become a point of principle for him. Read more here.
There are wider considerations.
One is that although premiums have been refunded it is not merely premiums that are at stake. Remember: insurance is not merely about the premium and the claim payment. It is about the peace of mind that comes from knowing financial risk has been transferred. Client's want that, and when they discover that they perhaps never had it, they can become very, very unhappy about it. Insurance clients have to trust their insurers. That was always the part of the bargain of 'utmost good faith.'
The other is that consumers cannot be expected to be insurance lawyers. In this case an insurance-specialist financial adviser noticed the clause which would have denied them payment. It pays in almost any matter where you are non-expert to ask for advice and take it. That advice could even come from an in-house specialist.
David Chaplin reports:
"Banks have mounted an all-out attack on Financial Advisers Act (FAA) reform proposals to clearly distinguish ‘sales’ from ‘advice’ setting themselves at odds with industry bodies and consumers."
and also adds for clarity that
"...the big four Australian-owned banks and Kiwibank all strongly argue against introducing a formal distinction between ‘salesperson’ and ‘financial adviser’ into the regulatory mix."
Those a pretty strong words from David. I was interested in how we know that consumers would like a clearer distinction, and you might be too:
"An accompanying MBIE survey also found almost 90 per cent of consumers said “clarifying the difference between ‘sales’ and ‘financial advice’ would help them better understand what they are receiving”
Read the balance of the article at this link.