Zombie fee focus by regulators and more daily news

Investment News NZ highlights the issue of 'zombie fees' in its recent piece on ASIC's legal action against five AMP entities in Australia. "Zombie fees" are fees which carry on being charged even if no service is being given, sometimes even if the client has died. Of course, if an investment management service is continuing then some level of fee should continue but it is hard to argue advice is being given if the client is dead. In a sector which usually knows the age of its clients and offers products explicitly focused on end-of-life issues we are being challenged to be more active in identifying when a client dies, which is a matter of public record, rather than simply continuing to take the money. 

In a release, the Australian Securities and Investments Commission (ASIC) says the legal action alleges five AMP entities “were involved in charging life insurance premiums and advice fees to more than 2,000 customers despite being notified of their death”.

Last year AMP paid out about A$9 million in a remediation program established to redress fees charged to close to 20,000 dead insurance and superannuation fund clients.

But the latest ASIC action comes in “respect of 2,069 deceased members affected by the retention of premiums, and 27 members affected by the retention of advice fees”.

Does this affect New Zealand? Not directly, in the Investment News NZ column it is clear that NZ entities are not part of the recent news. However, it is clearly unacceptable to continue to charge premiums and or advice fees long after a person is dead in either jurisdiction. We can expect that when conduct law passes here, a conduct program will need to envisage how to identify if a person has died and how to treat products while and end-of-life process is followed. Advisers, largely exempt from the conduct programs, will inevitably be caught by either their obligations under the Financial Advice Provider license, Code, or commitments to product providers. 

You can read more at this link: https://investmentnews.co.nz/investment-news/zombie-fee-charges-rattle-amp/ 

Other daily news: 

Kōura is calling for advisers that want to offer a 'facilitated' digital advice process. This underlines the trend towards convergence of digital and human in contrast to the binary view of development in the past. 

Pinnacle Life shares details of how a change in income may affect the need for life insurance. 

Adviser business values - those that are low and those that are high - are the subject of my recent piece at goodreturns. 

Seth Godin shares with us how not to miss a deadline - and how to - in two interesting and challenging posts: https://seths.blog/2021/05/how-not-to-miss-a-deadline/

 


Pinnacle Life offers self-servicing life insurance tool, and more daily news

Pinnacle Life has announced the introduction of a tool that allows people to understand how much life insurance cover they really needed. The tool is designed to identify important people in a user’s life and the user’s worry as well as the household income of the user. Once all details are provided, Pinnacle Life provides figures on the amount people with similar incomes spend in a month on insurance cover. Based on the user’s worry, Pinnacle Life also provides information on the types of cover and amount. Although the information is not personalised advice, there are "get more advice" and "get covered now" features available.

“Up until now, if you knew you needed life insurance, you could use some simple calculators that considered your financial needs, or you could talk to an insurance adviser. Pinnacle Life has always offered life insurance directly, but we couldn’t help you work out how much you needed in a thorough and sophisticated, and regulated, way. Now we can.

The tool starts by asking you to think about who’s important to you, and who relies on you for financial support. It then takes you through a step-by-step process of working out what your drivers are for getting insurance, what you worry about and your financial circumstances. We give you some things to think about along the way, but the more you tell us about you, the more we can tailor the advice to your situation. This includes telling us about your family, your health, your finances and any life cover you have already.

The cool thing is it doesn’t take very long to go through the whole process, and you can do it as many times as you like. To make it even easier (and quicker) get any details about your finances ready before you start – things like how much you earn and the amount of assets or debt you might have. You can do it on the couch in front of the tv and wearing your pajamas if you like, at 3 in the morning when you can’t sleep, on your own or with your partner, it’s up to you.” Click here to read more

In other news

nib: nib Adviser Oversight Framework launched

Compliance Refinery: 2021 Predictions survey to celebrate Compliance Refinery turning three


Themes for 2021 in life and health insurance

What will be the big themes for 2021 for life and health insurance? 

  • Helping people keep their cover through disruption will continue to be a theme - although economic performance has been better than expected there remain quite a few people out there struggling with adjustment to the COVID economy. Several advisers tell me of long conversations that are essentially about conservation. They take time and they generate little revenue - this largely unsung work is of a piece with claims help and is part of the value of the commission model: the adviser isn't expecting to charge a fee for these discussions, they just want to help the client stay covered. 
  • The shift towards digital - within advice businesses, at insurers, and for consumers. Digital is an enabler of faster transactions, more efficient administration, better accuracy, and more meaningful engagement. More adviser businesses will develop better digital capability and be looking for ways to automate certain processes. That includes digital advice offerings. It also means better underwriting processes built around access to 
  • Direct - it has shown solid growth - and not merely as a proportion of the market which has shrunk, but in absolute terms. It has benefitted from a big drop in bancassurance and a big push through online social media platforms. I really want to see the quality of the offers improved in 2021, but that will probably require more work in the area above to achieve. 
  • Regtech - this is the year we begin to see regtech applied to insurer and adviser conduct programmes - analysis of all clients by a range of factors will be a vital complement to human-managed compliance processes.
  • Transition - to the new advice regime means that a lot of advisers will be spending a bit more time than usual working on systems, new processes, and disclosure requirements. That will hit productivity for a few weeks. Combined with holidays, will the nadir be the first quarter production figures with a recovery from there, or will the second quarter be the low point? I am expecting recovery and more confidence to recruit and focus on marketing to be able to get traction in at least the third quarter. 
  • Consolidation - adviser business size is definitely rising. The greater integration and co-ordination required to successfully meet new compliance requirements is reflected in the high number of authorised body structures being disclosed by FMA licensing statistics. 
  • Consumer knowledge and understanding will continue to rise as more advisers share relevant content in easily digestible digital media. Gradually the focus on what is most relevant and readily explainable will begin to percolate through consumer finance forums changing the general perception of 'good' this will further current consumer trends towards more living products and more packages of benefits. 

 

 


Australia: CommInsure pleads guilty to hawking charges

Lucas Baird at the Australian Financial Review writes that CommInsure has pleaded guilty to 87 breaches of anti-hawking laws:

"In all of the 87 calls charged, CommInsure did not comply with the requirement to offer the customer the option of having the information required to be included in the Product Disclosure Statement for Simple Life read to them prior to the offer to issue or sell the product," ASIC said in a statement.

The regulator said that in 14 of the calls charged, CommInsure also failed to give customers a product disclosure statement before becoming bound to acquire Simple Life; and failed to clearly inform the customer of the importance of using the information in the statement when making a decision to acquire Simple Life.

You can read the whole article at this link - although you may need a subscription. 


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.

 


Dan Schreiber on Digital Insurance Companies

Daniel Schreiber has a great piece over at LinkedIn on how AI "eats" insurance. You may take only a very little comfort that he's from a general insurer. Life insurance is not immune to the lesson he's preaching. The only comfort New Zealand insurers have is that courtesy of the tiny size of our market, local regulatory variation, and our distance from the centres of innovation (mainly San Fancisco and London) we have more time to react and build proper digital platforms ourselves, before these folks arrive. But maybe you won't, maybe you'll just let them. For digital insurers going direct, like Daniel Schreiber envisages, it is vital that end-to-end you own your platform in order to bring in all the data to the learning environment. As an aside, Schreiber offers the briefest and most cutting take-down of averages: "on average your customers have one testicle". Anyhow, go read the whole article. It isn't all right, it isn't all as simple as that - but there are some strong points, and they should spur action.


Some Don't Take the Difficult Ones...

A day or two ago a friend introduced me to someone who had recently received an underwriting decision from an insurer. It was a deferral for five years. She told me her story and I thought it was worth referring her to a professional financial adviser. It seemed likely it was worth applying with another insurer (I've got similar medical issues and have always been able to get cover, so there is a good chance she will be able to). The deferral wasn't for all the cover she had applied for. Choosing to take what was offered she accepted the life cover offer without the income protection. 

Of course, the first insurer, that issued the deferral, is perfectly entitled to decline any risk that does not fit its commercial model. It doesn't have to tell the applicant that they could get cover elsewhere, even though they probably knew that she could. They weren't giving financial advice, just offering a product.

Equally, when the client gets cover for the income protection, she is likely to take out life cover with the new company too, and cancel the old, because she is perfectly entitled to prefer the convenience of one insurer, and is likely to feel happier with the one that can cover her for income protection as well - rejection by one and acceptance by the other can have an emotional effect. Both those decisions, by the insurer, and by the client, are just the cold, hard, facts of the marketplace.