FSC Launches new insurance research

The Financial Services Council has launched new insurance research highlighting the gap between typical and ideal cover levels and some significant challenges facing the industry in lifting consumer engagement.

In the media release the CEO of the FSC, Richard Klipin, highlighted the purpose and key findings: 

The study looked at the three main types of life insurance available in New Zealand; life insurance, income protection/mortgage repayment insurance and critical illness insurance. “While 54% of those surveyed agree that it is important to have the right amount of insurance to cover risks including illness, death and job loss; estimates of underinsurance are much higher,” continued Klipin. Critical illness showed the highest level of underinsurance with only an estimated 9% of Kiwi’s being sufficiently insured, followed by 11% who had adequate income protection/mortgage repayment insurance and 29% with adequate life insurance.

Consumer views are included in this introductory video: 

 

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The research can be viewed here


2020: changes to insurance contracts

The Government announced plans reform laws governing insurance contracts. Minister Faafoi has said that consumers will have greater certainty about their insurance cover when they need to make a claim.

Agreed changes include:

  • Placing the responsibility on insurers to ask consumers the right questions when processing new insurance policies
  • Requiring insurance policies to be written and presented clearly
  • Ensuring insurers respond proportionately when consumers don’t disclose something they should have, or misrepresent themselves
  • Strengthening protections for consumers against unfair terms in insurance contracts
  • Allowing the FMA to monitor and enforce compliance with new requirements

Click here to read more


End of Life Choice Bill coverage focuses on insurers... it probably shouldn't

Katrina Williams, writing for stuff.co.nz has a piece on how life insurance companies may have to decide how to cope with the new End of Life Choice Bill if it becomes law.

The first thing to be clear about is that life insurers are bound by their current contracts in the marketplace. I don't think that the article is as straightforward about this as it should be - it therefore raises doubts about claims payment under current contracts that are not really there. As one insurer in the article relates, most insurance policies cover suicide provided that the policy has been in force for at least 13 months and there was no evident intention to defraud the insurer. 

Another point to note is that end of life choice typically happens in old age. Although the debate about euthanasia tends to highlight extreme cases - like cases of severe illness in younger people because of the tragedy of them - these are rare. When you examine these cases more closely they are often (although not always) as a result of long-pre-existing disorders, sometimes congenital. Few such people own life insurance, and few people hold life insurance into very old age where most end of life choices are likely to be made. The actual number of policies affected is likely to be small, and in most cases, these claims are being met already under payments for terminal illness, and eventual death, whatever the exact cause.

Insurers are conscious, also, of the risks of commenting on a subject where views vary considerably and feelings are strong. The business of an insurer is insurance, not political advocacy. Whatever the views of individual executives might be, their shared project is the business, and they are conscious of that particular, defined duty to their clients. That is evident in Richard Klipin's response, as CEO of the Financial Services Council: 

"The life insurance industry and individual companies will work in a careful, considered way to review policies to ensure that they remain fit for purpose, in line with international best practice, and continue to provide the support and coverage that New Zealanders expect," 

There are wider implications if the Bill becomes law. Product design must consider moral hazard, which may be slightly elevated in the case that a decision to end one's life is more acceptable and legal. These challenges, however, are usually successfully navigated in this market, as they have been in other markets. The existing moral hazard of the incentives to fraud and murder are very well managed by New Zealand insurers through the underwriting process and through the law. There are many issues to consider in the End of Life Choice Bill debate, but how insurance may operate is not the most important. 

Click here to read more. 


Product and pricing changes for OnePath, nib, Asteron Life, Southern Cross, AIA and Sovereign

An absolutely huge couple of weeks of changes: 

Pricing:

  • Updated OnePath Mortgage Protection Prices effective 1 July
  • Updated nib health prices effective 1 July
  • Updated Southern Cross health prices effective 1 July
  • Updated Asteron Life and Trauma rates effective 1 July

New Features:

  • Needs Analysis – added Standalone and Accelerated options for existing Trauma and TPD insurance
  • Research report – added a new page at the end explaining the QPR Research methodology

Research:

Completed a big set of changes, with some quite substantial shifts (see more posts later today and next week)

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Eligibility rules:

  • OnePath - Income Protection, Mortgage Protection and Trauma - changes in entry ages
  • OnePath - Income Protection - age limit changed

How Japan can cope with the 100-year-life society

This article from The Economist discusses the issues facing Japan as they expect over half of Japanese babies are expected to live to 100. The impact of lengthening life can be seen all around us - in 1800 for a person to live to 50 was rare - the world over. Today, it happens more than not, even in some of the poorest places on earth. The changes to our industry appear not to be obvious, but that is probably because the changes are slow. Once, the very idea of trauma insurance, or disability income insurance, were seen as revolutionary. Today our worry is that the allocation of premium to life insurance is a problem - that money should really be spent on living benefits. 


Quoteable from Day Two of the FSC Conference

Adrian Orr – RBNZ

“Proud of my first on-the-record speech… which is why I am not going to read it, you can go and read it, and I will talk about something else”

Orr proceeded to talk about the global economy, some of the big issues, and the role of financial services companies. That included a powerfully succinct description of what almost every financial organisation does in some way:

“Identify a risk – ooh, look at that -  price a risk – ooh can’t afford that – and then allocates the risk – then the right person takes on the risk or manages it… without those we have gaps – unidentified risks, risks that are not properly priced, and therefore not efficiently managed. So, we get ups and downs, surprises, and shocks: like wars, crashes, and environmental issues like global warming.”

Orr’s big worry list included the reducing returns to labour, about concentrations of companies (fewer larger businesses) and those that have large intellectual property entitlements – hard to compete away and so on. He then moved on to a principal and agent concept discussion – as part of the thesis on the short-termism. Most people are focused on short-term incentives, and that creates externalities – like those listed above. He pointed out mis-pricing water resources and 'calling it the dairy industry'. Laurence Kubiak explained that more technically:

“We have great factor endowment for agriculture… but this is our problem zone for climate change – we rely on those industries”

All of that was the platform for moving to a conversation about conduct issues. Naomi Ballantyne supported the need for conduct regulation that set rules for

"some things that you have to demonstrate… including your value proposition for your longest held customer, how you look after your lowest paid employee… how we support people to speak up when they see conduct problems.”

Also adding:

“I don’t know how we regulate for long-termism, but I know that we can ask companies to report on more issues and over a long-term…”

This got spontaneous applause, but Adrian Orr felt it was not thunderous enough, and asked us to applaud again, and he proceeded to endorse the comments. Although later he did add that insurers shouldn’t be offering overseas trips as incentives. Taken together, Naomi Ballantyne’s comments, and Adrian Orr’s give four suggested corners to conduct regulation:

  1. Look after legacy – that’s the value proposition for the longest held customer
  2. Look after the lowly – that the support you offer to your lowest paid employee
  3. Listen to conduct questions – wherever they come from, and often service staff and customers who ‘don’t understand’ the business may see more clearly than people soaked in the business
  4. Incentives matter – and excessive incentives should not be used – as they have conduct implications

I am sure more can be added, for my money, these two would come in:

  1. Be certain of suitability – don’t let people buy the wrong thing, but carefully allow room between conduct and financial advice – the two are different
  2. Address information asymmetries

Martin Hawes on how much life insurance people should buy

Martin Hawes has this article covering how much life insurance people should buy. For a refreshingly succinct approach which requires little maths this isn't bad. But for you - an industry professional seeking to abide by the Code, and meet a budget envelope - it is simply not possible to consider life insurance in isolation from other insurance requirements - unless directed by the client to ignore them. Given that about four out of every five New Zealanders have no income protection cover, concentrating on the right amount of life cover alone is a bit like buying triple glazing while you still haven't bought a roof.


Premium Comparison v97

We have just distributed a new version of the Premium Comparison database, version 97. This has several innovations: 

Both Access and Tableau workbook versions:

  • Updated Partners Life Level Life rates
  • Added Level Life To Age 70 for all companies and To Age 100 for Fidelity

Exclusive to the Tableau workbook:

  • We have added What-If charts for all benefits and created a new box and whisker plot view of the Price Change data.

In the next version of the database you will see the product descriptions removed (and placed in a separate document to reduce the size of the database) and also a shift to showing each year pricing, not just every five years.  


QPR Update V106

We have recently distributed the QPR database to subscribers and have also updated Quotemonster with the following changes:

  • BNZ - Policy Amendment 1 Sept 2017 Life, TPD, Trauma and Income Protection
  • Fidelity Life Policy Wording updates. No rating change
  • Exclusion Definition review of all products

Life Happens

Here is a not-for-profit organisation in the US called 'Life Happens' which has a range of tools to 'inspire the public to take personal financial responsibility through the ownership of life insurance and related products.' As this month is Life Insurance Awareness Month in the States the site has many useful resources for consumers.