moneyblog

Code Working Group Blog: data on submissions received

The CWG has updated their blog (Thanks Angus Dale-Jones) and provided a cool summary of the submissions received. Insurance advisers and insurers were well-represented:

We received around 160 submissions – nearly 2000 pages. Approximately...

• 20% of submissions were from RFAs,
• 16% were from AFAs, and over
• 20% were from firms whose services ranged from investment and insurance broking, to investment advice and wider financial planning.
• Over 10% were from industry bodies or dealer groups, and around
• 13% were from insurers or QFEs such as banks.

We also received submissions from or had meetings with consumer representatives, dispute resolution schemes and education providers.

Code Working Group Submissions Published

Submissions to the first round of consultation by the Code Working Group proposals have been published. You can find them at this link: http://www.mbie.govt.nz/info-services/business/business-law/financial-advisers/financial-advice-code-working-group/submissions/the-following-submissions-were-received/

I am impressed by the large number of submissions by insurers and insurance advisers. This is an important issue and I am delighted that so many of you have submitted feedback. My submission is in there, as are submissions by a number of insurers. Well worth a look over the weekend. I am not suggesting that the material is anything other than engaging, but in the unlikely event that you do get bored, you may amuse yourself by trying to work out who made the five anonymous submissions.

It is also great to see the submissions published before the next round of consultation, as it helps to become familiar with the arguments of other participants before we engage in that process.

AIA's plans for Sovereign...

Bill Lisle, Regional CEO for AIA, spoke with Tamsyn Parker, Money Editor of the New Zealand Herald giving details of AIA's plans for Sovereign as part of AIA's combined operations. Some highlights:

Speaking to the Herald he said Vitality allows the company to have different conversations with existing and new customers around being healthier and living longer rather than the typical focus of life insurers on the risks associated with how soon a person will die.

The Vitality programme looks set for launch in New Zealand, which will be a useful and interesting development.

"The industry goes through cycles. AIA has been in Asia for nearly 100 years. We are in 18 countries. The only way you can do that is working closely with the regulators on the ground."

So Lisle is not too worried about the conduct issues. A specialist insurer is like that - if you've been an insurer for a hundred years, and you're planning on another hundred, you take a long view.

On growth there is lots of talk about scale, which Sovereign definitely brings, and Lisle points to the underinsurance gap with this pithy quote:

'In New Zealand, Lisle said there was a gap in the protection market of around $65m with the country third from the bottom when it came to OECD rankings for insurance cover.'

The brand?

The Sovereign name will also go over time, although it would stay in place for at least the next six months. "We are in no rush to change the brand," he said.

Link to full article, 5 minute read.

Convenience comes at a cost: typical non-underwritten cover, and the exceptions

The most common types of non-underwritten life cover are typically more than double the cost of fully underwritten cover, and come with extensive exclusions. Price indications are available for research subscribers on Quotemonster, but a review we did for clients age 30 buying $200,000 of live cover, showed that non-underwritten cover was typically more than double. On small sums bought fr short periods, that makes little difference: but over any reasonable sum insured, for any reasonable period of time, that's a high price to pay. There are exceptions: AMPs KiwiSaver Essentials is one, and the Partners Life FastApp is another. AMP's cover is slightly pricier than normal, but avoids pre-existing conditions exclusions. Partners Life's FastApp is the same price as normal cover, but does have reasonably extensive exclusions.

Momentum Life joins Financial Services Council

Momentum Life has joined the Financial Services Council, reported in the latest issue of the FSC member update.

A 'two-tier system' for disability?

There are so many articles about ACC payments being stopped, or the inadequacy of coverage, that I have wondered how long consumers could continue to believe that ACC was a valid reason not to buy income protection insurance. But then again, may be not. In this article (link) the difference between inadequate and sometimes unreliable ACC support and the support available for people with disabilities from non-accidental causes is explored. If you became disabled due to illness, you are even worse off. It is a long read, but if you can keep going, the comments about a "two-tier system" for disability are near the end. As most long-term disability is not caused by accidents, the 'two-tier system' should concern us all. For those of us that can, an immediate solution is available, in the form of income protection insurance. More resources available at this link.

Sovereign and AIA announce "Life plus one" discount for multiple benefits

Sovereign and AIA announced "Life plus one" a new discount structure for multiple benefits - from their anouncement:

Starting today – we are excited to announce a great new deal to offer your clients! Our Sovereign Life + one offer.

For a limited time, your clients can now get 10% off for the life of their new TotalCareMax policy. 

From 11th of July 2018, you can offer your clients 10% off any benefits taken out on their new TotalCareMax policy. To qualify for this discount your client must take out Life cover of over $100k and one other Sovereign TotalCareMax risk-benefit with a combined total annual premium of at least $1,000 before the discount is applied.

FMA report on replacement business processes at QFEs - UPDATED

The FMA has just released their report on QFE insurance providers’ replacement business practices. More detailed comments are available to subscribers to my Quarterly Industry Life and Health Review service. Summary comments on the report:

This review is important. This is part of the FMA’s series of reviews looking at replacement business advice in different distribution channels and forms of regulatory supervision. It is comprehensive and does a good job of exploring the conflict of interest issues present in vertically integrated organisations.

Consumer harm is explained but not quantified. The nature of the harm that can be caused by inappropriate replacement is explained, both in summary and in detail later in the document. What is not tackled is the extent of actual harm done. I agree that harm is done, but explaining how much and the impact on customers would help a lot in determining priority, and how to fix it. This is an issue which cuts across all these reviews.

Problems defining replacement business. The FMA mentions that every QFE has a different definition of replacement business, and one even defined it so narrowly that it only counted replacement of their own policies as replacement at all. It doesn’t appear to want to enter into the comment, let alone guidance, about the definition, however.

The FMA makes a number of hard-edged comments highlighting that it thinks there is insufficient acknowledgement of the conduct risks with replacement business, or the conflicts of interest inherent in the sales or advice process used by these QFEs. It goes on to state that action is being contemplated – although due to the problem of whether advice was given, this may be very limited.

Does this cover all replacement sales, or only replacements where advice was given within the definition in the FAA? Many QFE advisers claim exemption from requirements of the AFA code on the basis that they are not offering advice. Take particular note of the FMA’s declaration of its jurisdiction on page three of the report:

"QFEs are responsible for any advice given by their advisers. They must also ensure their advisers comply with their financial adviser obligations. One of an adviser’s obligations, under section 33 of the FA Act, is the obligation to exercise care, diligence and skill when providing a financial adviser service. We have issued guidance on the care, diligence and skill obligation, including in the context of insurance replacement advice."

That appears to exclude non-advised replacements. Many insurers have stepped outside the regime, and decline to offer advice. Many “QFE advisers” are not giving advice and never do so. This is an important point, but as a taxpayer I am leaning in the direction of not bothering to test it - after all, in a few months, the rules change. So maybe the FMA is focused on using the lessons of this review to keep the conversation about conduct going today, and inform its guidance under the new regime. That is probably wise.

Promoting the value of advice: insurance and home loans advisers lead

At the recent Advice at the Crossroads event, hosted by the FSC, I heard that only about 20% of people seek financial advice in their lifetimes. I'm not quite sure where the number comes from, or what is describes. I suspect that it is limited to people seeking investment advice. In the insurance world, the proportion seeking advice may be higher, it would be fascinating to see the impact on the total seeking advice at any stage in their lives if we included anyone who seeks financial advice from an insurance adviser, an investment adviser, budget adviser, or mortgage adviser.

In the insurance world, advisers account for 55% of insurance sales (life, trauma, TPD, IP, and MP) by value, and although it would be lower by number, it is still high. In spite of many different pronouncements of their imminent demise, mortgage advisers remain a large and important part of the whole advice market. The nature of financial lives means that the need for a home loan and insurance tend to come before the need for investment advice. Hence, these advisers are the key to spreading the word that advice helps.

Insurance Contract Law Review Discussion Paper Submission

I managed to complete my brief submission on the Insurance Contract Law Review discussion paper late on Friday (just in the nick of time - I got it sent off about 3.30pm, and the close-off was 5pm). I focused my response on the issue of what product information can be found, understood, and compared. The submission will be public in due course, but if you want a copy then please feel free to email me and I shall send it to you. I limited myself to this area as I had already some input into the FSC's submission on the other areas of the document. If you did not submit at this stage, and would like to keep up to date with progress, then check out MBIE's page for the review (at this link) and keep an eye out for the options stage, to come next.

Code Working Group

I would like the Code Working Group to start using their blog. No update since November, but as we have seen from the discussions, consultations, and releases to media - there is plenty to talk about. Rather than close down the unused blog, I would be delighted to see it burst into life. Communications do not have to be complete, they can be quite limited, so long as there really is a commitment to keep them coming. It would be good to see.

Recent (financial) reading

Most work reading has been endless reports and consultation documents, plus policies, company email announcements, and poring over premium change data as I have recently been putting the Quarterly Life Report together. However, I dis manage to re-read an old (but good) favourite. Tim Harford's 'The undercover economist strikes back'. Worthwhile for the examples of sticky prices, the story of Bill Phillips MONIAC, and the contrast between supply side and demand side economics that run through this pragmatic and largely apolitical book. I also have a small pile of sales books (courtesy of Brian Klee, who has a fabulous library of such things) to help me prepare for another little project I'm working on slowly in the background.

The Most Ambitious Thing Humans Have Ever Attempted

What's the most ambitious thing humans have ever attempted? Public health care is, according to Atul Gawande. Most well-known for his book "Being Mortal" about end-of-life care, Gawande is also famous for another book, "The Checklist Manifesto" both are well worth reading for people interested in both public and private provision of health care, and the wider links between financial well-being, health, and insurance coverage. But back to the question of the 'most ambitious thing humans have ever attempted":

In healthcare, for your 13 organ systems, we have 60,000 different diagnoses, 60,000 different ways your body can fail. And we have generated 6,000 drugs, 4,000 medical and surgical techniques and procedures, plus an uncounted number of ways to prevent those conditions, and we’re trying to deploy that capability town by town to every person alive regardless of their ability to pay.

Now, I’ve argued that is the most ambitious thing man has ever attempted, that human beings have ever attempted.

here is loads of good stuff in here for insurance advisers. Gawande reckons that on average we will each have eight operations in our lives. There are loads of interesting facts, figures, and meditations on the confusing incentives of different approaches to funding healthcare. Make some time and listen to it. The link below is to the website for Freakonomics, but you can also grab the podcast from many places that host them.

Listen to The Most Ambitious Thing Humans Have Ever Attempted from Freakonomics Radio. Link.

 

How is the world doing in its fight against vaccine preventable diseases?

Our World in Data has this article discussing the number of deaths relating to immunisations. 

Below is a chart showing the decline in children deaths by cause. The article also has a chart showing the deaths caused by vaccine-preventable diseases.

FMA expects to release report on replacement business by QFEs in the next couple of weeks

From the FMA's recent newsletter:

QFE insurance providers’ replacement business practices

This month we'll release a thematic review focused on QFE insurance providers’ replacement business practices. It will look at how these providers’ policies and procedures are ensuring consumer protection. This work is part of a suite of reviews of conflicted conduct in the financial services sector. We will follow up later this year with a report on the structure of bank incentives.

Quotemonster loves Insurance Advisers

Quotemonster will be supporting the National Advisers Conference again this year. We look forward to seeing you there.

Quotemonster is dedicated to supporting Life Insurance advisers in providing market comparisons in a quick and simple way. It provides pricing options and in-depth research to enable advisers to review the market and support them in creating great customer outcomes. 

From start-up 7 years ago Quotemonster is now the leading provider of pricing and research to the Adviser industry. The monster still isn’t done yet, with the addition of the new Advicemonster service adding needs analysis, scope setting, sum insured recommendations, and Statement of Advice writing to help you meet new regulatory standards efficiently and professionally.

Life is Beautiful - by Cigna

Here is the latest TV ad from Cigna Life.

 

Sobering cyber-security story, with a happy ending

Janice Blaikie thought she had lost everything when she was hit by a sophisticated scam which convinced her to transfer the deposit on a house she was buying to a scammer. It is not clear from the article how the scammer knew enough to dupe her so effectively. It is worthwhile remembering that sources of data (both public and private) may be used by scammers to make their approaches seem very real, and convince people to willingly part with money. But Janice is fortunate, her real estate agency actually stepped in and paid the deposit for her when they found out what had happened. An investigation into the scam is ongoing. Link.

FMA Consultation paper: exemptions, other legislative notices, and unnecessary compliance cost

The FMA announcement on a consultation:

We are seeking feedback on the effectiveness of our legislative notices in minimising unnecessary compliance costs. Submissions close 5pm, Friday 31 August 2018.

Link.

Given the logjam of work that has to be done by much of the financial services industry around legal and compliance matters right now, few will be thanking the FMA for adding another consultation at this time, even if it is about minimising unnecessary compliance costs.

Latest Goodreturns Article

My latest piece on goodreturns - on a theme of 'when did everything change?' Link.