Chartered Accountants Australia and New Zealand’s report has found that New Zealanders are more likely to seek financial advice from family and friends at informal gatherings. People reported that their friends and family were the most trustworthy source, followed by accountants. The good news for financial advisers is that as people get older, they understand the value and importance of professional financial advice. Click here to read more
Most of the people I know have had a very busy few days - apart from those that were already in self-isolation. The small business buyer wasn't at Pak N Save - they were at PB Tech. Not everyone is at the same place in their journey of digital transformation, and this week is a rough one for those that have more manual processes. For them, as for all of us, digital provides a welcome slice of good news.
Start with your basic hardware set-up (a reasonable laptop or desktop computer, a decent internet connection, microphone, camera, good chair, a good room in which to set it all up). Perhaps you already had an extensive home rig - and you just had to plonk the work laptop down on the desk. But maybe you've been busy with family and the pieces are in boxes taken from work over the last few days. You might want to check out some of the shots of home set-ups that people are sharing online to get some ideas. Here are two great links:
I particularly like the ones that show innovation, with things like computers squeezed into odd spaces, some DIY to get desks and screens that work well, and so on. The hardware, the physical office set-up in space is just the tip of the iceberg, however. It's the software, the tools, the process and the attitude you bring that makes the difference.
Here digital has some great news for you - even if your software set-up is minimal, it doesn't matter. Digital can be adopted and improved well during your isolation - services can be set-up, signed up, and learned purely online. If you haven't done this before, you can get help online. Your tech support people will be delighted to help you - remotely, of course. Insurers have already got a wide range of online tools covering quoting, needs analysis, application, and underwriting. Quotemonster is operating - usage is up about 20% - so you can do needs analysis and write SOAs.
There are also lots of online resources and a blizzard of emails from insurers about how cover works (normally for existing clients), how underwriting will work during this period (some restrictions on available product and some additional underwriting rules and processes), and how claims and administration work with most teams operating from home (its a bit slower, and call volumes are higher).
If you can offer a reassuring message to clients, I expect it will be gratefully received. If you can reach out to prospects and the wider community, some will doubtless respond.
As most people cancel their life and trauma insurance before retiring, the majority of life and trauma policyholders are younger and more likely to survive COVID-19. For this reason, life insurers are not expecting an increase in claims as a result of COVID-19. In this article both Partners Life and Cigna confirm that they have pandemic insurance in place, but also remind customers that they have relatively low levels of insurance on those that are most likely to be affected. Click here to read more :
"From a claims point of view, we don't believe it will come across in our claims experience on the types of products we sell," said Naomi Ballantyne, founder and managing director of Partners Life.
Most people cancelled their life and trauma insurance long before they retired, meaning most policyholders were younger, and had a very high likelihood of surviving a Covid-19 should they be infected.
I expect all New Zealand life and health insurers are in good shape to meet all claims.
Sonnie Bailey at Fairhaven Wealth has a great piece on Covid-19 and its potential impact on wealth and risk. Well worth a look: https://wealthandrisk.nz/coronavirus/
Parliament recommenced this week with first reading being completed on 12 Feb for three Bills relevant to the financial services sector:
- Financial Markets (Conduct of Institutions) Amendment Bill completed first reading, referred to the Finance and Expenditure Committee with report back due by 23 June 2020. (see more details in the blog post below).
- Fair Trading Amendment Bill read for the first time, referred to the Economic Development, Science and Innovation Committee with report back due by 12 August 2020.
- Financial Market Infrastructures Bill read a first time, referred to the Finance and Expenditure Committee with report back due by 12 August 2020.
Dates for closure of submissions on each are yet to be announced, but the likelihood of enactment before the election can potentially be gauged from the report back dates.
Consultation on the legislation being proposed for insurance contract changes is expected later this year.
My compliance guru, Rob Dowler, advises me that he has completed drafting his submission on the Conduct Bill some time ago while awaiting the call for submissions. He advises that his key submission points will be:
- Why is a “conduct licence” being introduced rather than simply legislating requiring compliance with the proposed conduct requirements?
- Why restrict the application of the legislation to licensed banks, insurers and non-bank finance companies? Why not capture all financial service providers? In fact, why not capture all commercial enterprises?
Good points. I know that quite a few industries share some of the information asymmetry that makes financial services a sector where the utmost good faith needs to be shown when dealing with customers: many technology companies offer similarly intangible services that have a lot of hidden complexity and are not fully understood by consumers.
Financial services is a complicated sector, and many simple things are trickier, on closer inspection, than they first appear. Novice consumer advocates are often surprised to find that short-form insurance costs more than fully underwritten cover. Consumers astonished to find that much 'direct' insurance is more expensive than the stuff where commission is paid. Others are amazed that the industry is allowed to discriminate - just the kind that we call it underwriting, enabling us to price different risks appropriately.
I could go on and on.
I try to remember that I won't know everything relevant, that my one insight into a problem might be a useful starting point, but is unlikely to capture everything about a situation - because it's complicated. A value chain rarely responds exactly as we expect.
(Prompted by the articles on commission and the rise in the number of articles which proffer advisers as 'the solution' - whether it is the low interest rate environment, the large number of people without a Will, or even, just without insurance.)
Although 4 times is usually taken as an industry standard, not all “4 x” are equal. The difference can be accredited to things like:
- Cash now with mechanism for claw back issues
- Documentation - especially of privacy and scope of service issues
- Age of clients
- Problems of enforcement affecting deal structure
- Cash and shares mix
Other factors that affect the multiple of renewals include:
- X factors - such as brand, referral deals, and technology
- Bargain basement factors - such as a poor reputation, location, or form of lock-in to an unpopular product provider
- Age and type
- The product mix
Increasingly, issues that relate to compliance under the new regime are being named, but these appear premature, as no-one is yet in the market to buy a Financial Advice Provider.
We record, source, comment on books, persistency, size of renewals, comment on transactions – and have dozens from the last two years to generate a range of multiples. If interested, feel free to email your interest to Jerusalem.Hibru@chatswood.co.nz
The New Zealand Herald coverage of RBNZ research and recent media releases reminds me of one of my favourite jokes about economists:
Three economists are taking a day off at the archery range. Being largely desk-based folks they aren't very good, but they're having fun. One draws their longbow shakily, aims, shoots, and misses the target by a metre to the left. The next draws their bow with effort, aims to the right, shoots, and misses the target by a metre to the right...
...the third economist then shouts "bulls-eye".
So when a report worries about both high levels of profitability (applicable to some companies) and lower solvency margin (applicable to different companies) and the media reports about both talking about 'the industry' it is this use of an 'average' that is confusing for readers. How can the sector make too much money and run down solvency capital? It doesn't. Some companies have low margin businesses and tend to have falling margins of capital above minimums and others have big margins and have stable or rising levels of capital. The story is different for each company.
The question of insurer efficiency, and in aggregate insurance industry efficiency, is an important one. It is complicated too. Unpacking it is hard and unlikely to be done in consumer-focused articles. Take just one issue: underwriting information. Major gains in insurer efficiency could be made is access to medical information, much like banking information, could be made more available at the discretion of each customer. If permission were granted to access ministry of health databases the results could make underwriting so much easier, and therefore quicker, and cheaper. It could be convenient, fast, and accurate. Usually we only get one, or sometimes two, of those three. But when the question of enhanced access to medical information is raised, even if that were controlled by the customer, the reaction from media is usually negative. So we are stuck with memory-test questionnaires that place disclosure burdens most heavily on the customer.
I am suspicious of 'unlimited.' it is meant to suggest limitless, but makes me wonder whether there is really an undisclosed limit, or worse still, a failure to work out what the limits are.
Working with some advisers that are selling their business recently, we accidentally got to talking about the limits to growth - why the business had never grown beyond a certain point. The expected maximum business size is limited by your rate of new business generation and your rate of lapses. When these two are equal the business ceases to grow. Most business development coaching works on increasing the rate of new business generation, a few then look at lapse rates.
But even before the new vs lapse limit is reached, often businesses cease to grow.
Then I got Seth Godin's piece about interaction debt in my inbox. I think this provides part of the answer. Many businesses never properly work out the cost of serving existing customers, and as the service requirements of those rise it reduces the time available for new business generation. It is particularly difficult to manage when the same person that is responsible for new business generation does all the existing business customer service. There are big advantages to that integration, but there are trade-offs too. Godin calls the servicing requirement an interaction debt. Focusing on it in that way highlights that it is unique interaction which is particularly costly. If that's appropriately charged, then there's no problem. If it is bundled with other costs one should periodically review it, as it is possible to get into a situation where revenue is insufficient to sustain the service promised.
I am particularly worried about the idea that a high upfront commission followed by a very small renewal should pay for an unlimited amount of future client service. That's a big promise. If you have run the numbers and you are happy with it, good for you. If you haven't checked, then you're just hoping it will be okay.
It has been reported that ACC has paid out over $1 billion to people who experienced injury after medical treatments errors between January 2010 and October 2019. Click here to read more.