Is your insurer aligned to your values?

In December Paul Brownsey, of Pathfinder Asset Management, writing at Stuff, asked "Is your KiwiSaver making an impact?" The question is elaborated upon by drawing a link between spending decisions we make all the time and whether or not your KiwiSaver manager is supporting those goals: 

"In our daily lives, many of us are conscious consumers. We make active choices about where we spend our money, and increasingly we are making choices based on ethical considerations."

Brownsey believes that your KiwiSaver should be supporting the values you may exercise when you make other spending decisions. Should your insurance do likewise? While most insurers are very conservative managers they may retain impact, through corporate bonds for example,  and through information and incentives. Insurers may have little leverage through investments, but what about other incentives? How much should insurers take a stand to try and improve the lives of the people that they insure? Here in New Zealand we have some great contributions to make to wellbeing - and some areas where we fall far short. Some of those problems are quite diffuse - the costs seem distant and too difficult for people to appreciate. But insurers understand how choices that seem without consequence can affect risk substantially. 

Whatever the method, the question of whether the substantial monthly expenditure on insurance is supporting consumer values or not is bound to come up again and again as consumer's wealth and level of education continues to rise. 


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. 

 

 


Implications of mental health on insurance, and more daily news

In his piece Dr. Chris Ball credits information being released by some insurers for the spike in media coverage of mental health issues. Insurer publications imply that mental health issues have reached epidemic levels. The article questions the credibility of the claims highlighting the increase in antidepressant prescription rates while citing a study that found the growth of adult mental illness to be minimal. With the increased rates of mental health issues being credited to demographic changes. The article highlights that the American Psychiatric Association view on mental health causes an issue with insurance companies. Insurers depending on medical models to frame products means applicants will need their mental health issue labelled in the early stage of their application process so that underwriters have a simplified way of assessing circumstances. Dr. Ball notes that the medical studies insurers refer to are usually not representative meaning that the assessment is unfair for applicants. Dr. Ball indicates that mental health issues requires a deep contextual understanding.

“Mental health has become a big topic of discussion in the media. Headlines describing mental health problems at epidemic levels are common - and many come from “research” cited by insurers. We know antidepressant prescription rates have doubled in high income countries over the millennium, to the extent that over 10% of the population in the U. S. and Australia take these drugs. So, is there really an epidemic of mental illness?

Toshi Furukawa, Professor of Clinical Epidemiology at the University of Kyoto, upbraided popular writers for “touting such sensational words like ‘epidemic’, ‘plague’ or ‘pandemic’”.1 A systematic review by Richter et al. concluded that the prevalence increase in adult mental illness is actually small and that it was mainly related to demographic changes.2 This is a view supported by Harvey Whiteford, Professor of Population Mental Health at the University of Queensland, who was quoted as saying, “There is no epidemic of mental illness sweeping the world…survey data which has tracked over time shows that the prevalence hasn’t changed - it’s flatlined.”3

DSM-5, the diagnostic manual from the American Psychiatric Association, states, “People are negatively affected by the continued and continuous medicalisation of natural and normal responses to their experiences; responses which have distressing consequences but do not reflect illnesses so much as normal individual variation”. This creates difficulties for the insurance industry, because it largely relies on a medical model to support its products, particularly in Disability Income (DI).

When an episode of psychological distress is disclosed by an insurance applicant, finding the right label for it is always an early step in the assessment process. At one level, a simple solution for the underwriter could be to continue with the medical model and rate for a diagnosis or any small indication of a diagnosis, lumping all psychological distress together.

When an episode of psychological distress is disclosed by an insurance applicant, finding the right label for it is always an early step in the assessment process. At one level, a simple solution for the underwriter could be to continue with the medical model and rate for a diagnosis or any small indication of a diagnosis, lumping all psychological distress together.

However, the outcomes of these disorders are strongly influenced by studies that mostly follow small samples of patients who encountered secondary care services because of the severity of their illness. These groups are rarely representative of the overall population, not adjusted for physical disorders, followed up for relatively short times and subject to publication bias. Including only these patients substantially over-estimates both all-cause mortality and suicide risk.

Clearly, this approach to risk assessment appears unfair to people who have experienced episodes of psychological distress but whose risk is low or the same as the general population. The situation is rather different in DI where mental health claims are common and perceived as prolonged and difficult to manage. Where psychological distress is disclosed by the DI applicant, a purely diagnostic approach proves a weak discriminator of risk. Exclusions are not well understood by consumers nor easy to enforce at claim stage.

The management of any episode of psychological distress in clinical practice is not just a matter of diagnosis but requires understanding in a much broader context. The individual’s experiences are important, but the history, personality, resources, social setting and the nature of the circumstances themselves must be grasped. Using this bio-psycho-social model helps to understand why one person experiences significant distress (possibly illness) in a set of circumstances, whilst another manages perfectly well.” Click here to read more

In other news

Partners Life: Partners Life Academy guide  

From Insurance Business Mag: 5G rollout will lead to new cyber risks - report

From GenRe: PFAS and Microplastics - The Next “Toxic Torts” on the Horizon?


Understanding the finer details of FSLAA, and more daily news

MBIE released more information on FSLAA in mid-December. Penny Sheerin, partner at Chapman Tripp, has said that these changes are finer details but did highlight that there would be changes to the FSP register to ensure the reduction of registry misuse.

“The Ministry of Business, Innovation and Employment last week released the regulatory requirements that underpin FSLAA.

Penny Sheerin, partner at Chapman Tripp says that any advisers reeling at the updates needn’t worry too much if they are already on board with the changes.

“Really these updates are just the finer details. Tidy-ups to some of the wording of the regulation. Updating terminology to reflect the new regime and a number of other quite administrative points. A lot of it is not ground-breaking new content.”

But Sheerin notes that there is one area which advisers need to pay heed too.

“One thing to note are the changes to the FSP Register, specifically around limitations that have been put in place to limit the misuse of the register. These changes have been talked about for a while but now they are manifesting in the upcoming regulations.””

The Financial Markets Conduct Amendment Regulations 2020 has been updated to change:

  • “Replacing terminology from the Financial Advisers Act 2008 (FAA).
  • Replacing references to financial advisers with references to financial advice providers and including transitional provisions to give affected providers time to update documents.
  • Prescribing eligibility criteria for an entity that wants to be an authorised body under a licence that covers a financial advice service.
  • Carrying over the effect of the Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 but with some updates and clarifications, and clarifying when assurance reports for assurance engagements must be obtained by custodians.
  • Prescribing limited circumstances in which a provider of a client money or property service is not required to hold client money and property separate from firm money or property including duties to protect the interests of clients.
  • Prescribing when firm money that is held together with client money is to be treated as client money.
  • Prescribing requirements for the record of nominated representatives that must be maintained by providers.
  • Prescribing the statement that lenders can give to make clear to consumers that the limited exclusion from the financial advice regime relating to lender responsibilities applies.
  • Continuing duties imposed under the FAA for former authorised financial advisers and qualifying financial entities to retain records.
  • Carrying over exemptions contained in regulations under the FAA.
  • Updating a cross-reference in the financial advice disclosure regulations so that financial advice providers are able to refer to their website for information about their legal duties.
  • Enabling financial advice providers to provide contingency discretionary investment management services (DIMS) without being subject to DIMS licensing requirements (and providing for transitional arrangements). This carries over and updates an existing licensing exemption for contingency DIMS provided by authorised financial advisers.
  • Dis-applying certain provisions of the Trusts Act 2019 to trusts relating to portfolio investment entity (PIE) call fund units and PIE term fund units.
  • Updating the information that must be disclosed to investors about the tax consequences of investing in managed investment schemes that are PIEs.
  • Amending the Financial Markets Conduct (Asia Region Funds Passport) Regulations 2019, including a new exemption from the licensing requirement for financial advice services.”

The Financial Markets Authority (Levies) Amendment Regulations (No 2) 2020 has been changed so that:

  • “The Regulations set levies for the new financial advice regime as well as for the 2021/22 and 2022/23 years reflecting decisions made earlier this year.”

The Anti-Money Laundering and Countering Financing of Terrorism (Definitions) Amendment Regulations 2020 was enhanced to ensure:

  • “The Regulations replace the now redundant terminology from the Financial Advisers Act 2008. No substantive changes to the AML obligations have resulted.”

The Financial Service Providers (Registration) Regulations 2020 has been changed to include:

  • “A requirement for additional information to be displayed on the Register.
  • New measures to address misuse of the Financial Service Providers Register.”

The Financial Service Providers (Exemptions) Amendment Regulations 2020 has been updated so that:

  • “The Regulations exempt certain providers without a place of business in New Zealand from registration on the Financial Service Providers Register if they do not promote services to New Zealand clients.” Click here to read more

In other news

[The Wrap] What's the point of the FADC?


Holiday reading - why fair play works

A review of why fair play works, one particular story that caught my attention was this: 

The Empire State Building was constructed in just 13 months, and that included the dismantling of the Waldorf-Astoria hotel that sat on the site. Paul Starrett, the builder, treated his workers rather well by the standards of the time, paying much attention to safety and paying employees on days when it was too windy to work. Daily wages were more than double the usual rate and hot meals were provided on site.

The concept is known as “efficiency wages”. Companies that compensate workers well and treat them fairly can attract better, more motivated staff. Unlike most construction projects, the Empire State Building had low staff turnover, and workers suggested productivity improvements such as building a miniature railway line to bring bricks to the site. But Starrett was not naively generous; he hired accountants to patrol the works, checking that all materials were accounted for, and staff attendance was recorded four times a day.

The review is at this link, and you can buy the book at this link. I've linked to the Kindle version - which you can read on your phone - because you can get it instantly. 


Seasons greetings from Ed

Season’s greetings! Did you know 3,765,000 kmh is the speed that Santa's sleigh would need to travel at to visit every home in the world on Christmas eve?

All of us here at Chatswood look forward to providing you with plenty more data insights in 2021!