moneyblog

FMA Letter to Insurers

The FMA has sent a letter to insurers seeking answers to questions about compliance with conduct expectations. The letter closely follows the approach of the letter recently sent to banks, and directly references issues raised by the Australian Royal Commission. The letter asks insurers to refer to the FMA's guide to conduct and provide details of work that they are doing to identify and address conduct risks. It also references FMA thematic reviews, past and current, as a way of signalling the areas of particular concern. You may read the full release at this link:

FMA website gets a makeover

The FMA has made a number of changes to their website based on feedback they have received.  The have also introduced a number of new features.

The main changes you will see include:

• New home page design and layout with better way-finding for investors/industry 
• New tailored compliance and investors landing pages
• One consolidated list of licenced providers with improved search and filter functionality which replaces the ‘lists and registers’ section
• Tags and filter function on a revamped warnings list to filter by name and/or type of warning
• A feedback field on each page to help better track user feedback.

A digest of media coverage of soft-commissions

There has been quite a lot of coverage of soft commissions issues in general media, almost uniformly negative: NZHerald1, NZHerald2, and Goodreturns1. Readers with an interest in the subject should also pick up the FMA reports (the original on replacement business, the follow-up on the same, and the report on soft commissions - all noted on this blog - click the tag FMA to find them quickly). Additional context can be found by reviewing the MBIE consultation document on disclosure. The UK's FCA also has some guidelines on sales incentives that support good conduct, and I shall try to look out the right link and post it here soon.

Consultation open: Insurance Contract Law Review

The Minister has released the Issues Paper for the Insurance Contract Law Review. Due date for submissions is Friday 13 July.

Fair Go on life insurance non-disclosure

Fair Go has this item on insurance non-disclosure, with a client of Partners Life who had a claim declined. Link.

As always, in a few minutes on TV, it is hard to say exactly what happened. The details not supplied by the client and the actual doctors notes are not available to us. Not knowing the detail means that I will not comment on this case, but can only consider cases like this one I have seen elsewhere.

Insurers pay valid claims, and do so with constant regularity. In cases like this one, where I have seen the information, I have seen both situations where it is obvious that an honest mistake was made and there is no way the client would have though that any of the four issues identified was worth disclosing - even though the form, I am sure, says that everything should be disclosed. It is even possible that a paternalistic doctor did not disclose their concerns about the client's health to the client. That happens, and leaves the client in a tough place. I have also seen cases where the client was worried about their health, perhaps more worried because of concerns raised several times by the doctor, and was therefore much more motivated to buy insurance, and specifically, in spite of being asked, did not raise these issues.

But for me, the lesson of this case is not about guessing which of either of those hypothetical scenarios applies.

It isn't even about insurance law reform, which might help a bit (with clarity, with clearer boundaries on the duty of disclosure) but then again - it might not help, and even in markets with insurance laws like those being considered still have non-disclosure problems and related claim declines. That law reform is still valuable, and needs to be done. But that is not the main lesson.

The real lesson is the underwriting process used. The limits of the process, which I call the "thirty year memory test," are clearly exposed at this point. I think it will be with us for a while, but it probably isn't going to be, in the future, the default way to apply.

Moving to new underwriting approaches, which use shorter forms, but more data; which rely on measurement, rather than questions and answers; which can use big data to assess cases rather than relying too much on the client's own, flawed, knowledge of their health.

There are some signs that this can be done. AMP's KiwiSaver Essentials is a good example of a product which crushes the problem neatly. Other technological approaches - such as evaluating images, or directly accessing medical records - are also worth exploring.

Take Life Back

Southern Cross has launched a new brand platform 'Take Life Back' which encourages Kiwis to reclaim the things that are important to their health and wellbeing.

Click here to read more. Here are Southern Cross's tips to help inspire Kiwis live healthier lives.

Earlybird specials now available for the Shaping Futures Conference

Register for the Shaping Futures Conference here. Earlybird tickets now available.

The problem with forced rankings

Here is Seth Godin's take on forced rankings, and he's not a fan. But so many humans are, because we so want to be number one, we don't like the idea of 'these are effectively the same - the differences are so small it doesn't make a difference' so we force rankings, in a way which Seth Godin describes brilliantly. Of course, we are familiar with forced rankings in the world of product research. Companies so desperately want to be able to say 'we're number one' that they even sometimes convert our carefully constructed comparisons into a a kind of winners podium: 1st, 2nd, 3rd.

But this isn't how advice works. Because advice is personalised, so is the research.

It's frustrating when you're looking to be crowned 'first' that you might be 'first' in only a set of circumstances, and second in another. For the client, however, even a 'set' of circumstances doesn't matter - only their circumstances matter. Also, they know that 'first' often comes with a cost attached to it, and first at any cost is easy, whereas best value for one individual, isn't.  Best value for one individual demands trade-offs and choices that are hard - real-world hard. Winning that argument is a complicated and more interesting competition than the one-dimensional ranking approach.

nib health journalism scholarship winners announced

Barbara Fountain won the nib senior health jounalism scholarship at the recent Voyager Media Awards and picked up the $6,000 grant towards travel, research and interviews.

'Judges Donna Chisholm and Lorelei Mason said Fountain’s proposal to investigate secrecy at district health boards was a standout. They were impressed not only with her strength of writing but her proposal to investigate DHB accountability – “an area where sunlight is sorely needed,” they said. “She has the experience in health and depth of knowledge to pull it off.”'

Click here to read more.

The cost of care: 'All I want is for him to have the quality of life he deserves'

I don't know about you, but $500 a week appears to be very little to live on. Perhaps the state cannot afford any more, but it underlines the need for additional private insurance if you want to live free of financial worries during a severe illness.

Grant was diagnosed with a crippling motor neurone disease in 2012 and his wife Glenda is his full time carer at home. Between them they receive less than $500 per week from WINZ.

'Glenda wants to highlight how little people who can't work due to disability receive from the Government — even if, like Grant, they have paid taxes all their life.

Health providers have also been reluctant to fund home improvements because of Grant's terminal diagnosis, Glenda Lovatt said.'

Click here to read more.

Pace of change, versus direction of change

The direction of change usually gets debated, but in fact, it isn't direct that's the issue - its pace. Most of the changes currently occurring have been predicted for some time. Consider a list:

• Increased disclosure requirements - commission in dollar terms
• Disclosure of soft commissions
• FMA investigations into insurance replacement business
• Licensing
• Increased competence requirements
• New draft Code to apply to RFAs

In fact, when the current Financial Advisers Act was but a Bill, many people thought that these would apply to RFAs, and were surprised when they found that they did not. Immediately post-GFC the FMA found itself with quite a lot of more urgent work to do, and has only really returned to these questions recently. Meanwhile some of us have been saying for years that the AFA Code should be considered the guide for RFAs - and quite a few RFAs have followed it, too.

he point of this post isn't to debate those issues in particular. It is to illustrate that there is debate about direction, and debate about pace. Some people felt that the prediction about direction of change back then was wrong. In fact, the direction of change was correct, and in line with a whole host of wider forces: consumerism, technological change, and regulatory trends around the world. What was wrong was the pace of change.

Pace matters for short-term decisions, but direction is the key for strategic ones.

Say you are an adviser with a short time horizon for planning - perhaps because you are contemplating retirement - and you are considering the competence requirements. When, exactly, the requirements apply may be critical to the decision to undertake them, or retire. Not so for the adviser with a longer term time horizon - for them professional development must be part of the strategy, with time and funding included in their thinking.

Similar differences in approach could be applied to issues like the range of advice services offered, whether to start charging fees, what process work to do, whether to invest more in systems, and so on.

 

 

 

 

Funeral insurance: "expensive"

Consumer NZ says that funeral cover could be the most expensive way to send-off loved ones. Consumer NZ reviewed 10 policies offering $10,000 funeral cover for a 64-year-old and this is what they found. They found it was expensive, and I agree. Having said that, it may be cheaper than the other ways.

Assuming all goes well, you should not be relying on insurance to meet final expenses when you are over 65. But that is assuming all goes well. The typical funeral costs between $10,000 and $15,000 - varying somewhat on what services are included and the part of the country the funeral is to be conducted in. What we would all prefer happens is that people live a long life, and with good fortune and effective planning, they have been able to get rid of their insurance a long time before final expenses have to be paid.

One way to look at insurance is that it meets a gap between your current financial resources and your remaining life time financial obligations. There are two ways you can reduce your need for cover. The first, to increase your current financial resources: by earning more, saving more, and investing well. The second, reducing your remaining financial obligations: pay off debt, help your kids to get financially independent, and so on. With continued employment, home ownership, and  modestly good advice, these have been achieved by many.

But some just aren't that fortunate. Some have struggled and for whatever reason are in a rented home living on NZ super and they have little else besides. In that case they may feel that in order to avoid being a burden, they should cover their final expenses. You may still be able to avoid buying funeral cover if you can work out with friends or family a savings fund. Saving the same premium you would spend on funeral insurance would do the job - after a few years - so provided you have someone to take up the slack in the meantime, that approach could work.

 

Incentive trips and disclosure

Incentive trips are topical, as is the review of disclosure regulations. I cover a little of both, finding that even accountants are being offered incentive travel these days - check it out in may latest story at Goodreturns. Link.

FMA Report on Soft Commissions Released - updated

The FMA report on soft commissions has been released, and you can find the press release and links to where you can download the full report here.

Some initial reflections on the report.

• It is a good review of the range of soft commissions in the market - in scope and detail - although even the well-informed may be surprised at some details. I was unaware of an incentive trip that cost a whopping $95,000 per adviser, coming to a total of $1.9million for that incentive alone.
• The release is timely, underlining the areas covered in MBIE's consultation on disclosure
• It is not entirely fair to contrast the expense of soft commissions with new business revenue alone - as most soft commission schemes have a business quality or persistence component, they rely on both existing business being sustained (dis-incentivising replacement business)  as well as new business being produced (possibly incentivising replacement business). For contrast, the $34 million in two years was 9% of about $377million in new business revenue, but as a percentage of all revenue, it might have been only about 1%, or even less.
• It reminds me of some of the work done on sales incentives by the FCA in the UK - their view was that sales incentives could be offered, but that it should be demonstrated that they were not going to undermine client outcomes. Some methods for thinking about that were discussed, it is worth considering such rules and guidelines.
• The review looked strongly at how the incentives could affect client outcomes negatively, but did not touch on how they affect client outcomes positively or support a functioning market. Which the FMA may presume is a job for someone else. A well-designed incentive programme can do those things by providing an incentive to reach new people, to undertake more activity than would otherwise have happened, and to introduce new skills and capabilities to the market.
• I note that the FMA found that advisers did not appear to be selling particularly high volumes of product that did not rate well, and that the FMA also underlined that this did not mean that the adviser was not subject to a conflict of interest. This is true, because the conflict is not just between different product alternatives, but between taking an action which could generate a commission (either to insure or replace) or not taking an action, which would result in no commission.
• Thinking about the future reports coming: I am slightly concerned at the separation of the market into regulatory segments (RFA and AFA) as distinct from the QFE area. Consumers don't operate with such distinctions in view, they compare brand, service, products, and premiums across the whole market, and insights might be missed by considering these as discreet areas.
• It is nice to see that based on research advisers are not necessarily recommending poorer product because of conflicted incentives. However it appeared that the research reviews seemed to rate very few products as poor (only 17%) - but this is partly a results caused by the split by regulatory type, as presumably it ignores simpler, direct sales, products.
• The comment that these incentives did not appear to affect sales was somewhat at odds with the comment that one insurer lost a third of its new business when they ceased to offer the incentives. It looks like that question is still subject to conflicting answers.

Pet Insurance - do you need it?

"Need" is a relative term. This is the kind of conversation that, had round the dinner table, one of my kids would definitely pipe up "first world problems, Dad". I suspect that pet insurance is another great example of the value of an emergency fund. To judge by the way that Diana Clement writes about it, I think she feels the same way. Having said that, if you were temporarily in possession of a loved animal and curiously had no cash cushion, it might be worth buying while you got the rest of your finances sorted out. The great thing about an emergency fund is that it forces you to look at purchases as your own risk manager, and at times, as your own claims manager. After a while you gather the experience necessary to look beyond the initial cost to buy a thing / pet / car etc... and you consider the total cost of ownership, which is a really valuable shift in perspective for people that want to enjoy better financial lives.

FMA Offers Public Data Visualisation

The FMA offered us a public data-visualisation alongside their review of Authorised Financial Advisers (AFAs). This is a cool milestone - we love a good data visualisation or dashboard at Chatswood. Here's the FMAs: I wanted to embed it, but the fixed width settings of both this site, and the tableau workbook, prevented that. so just check out the link.

You cannot really hide the fact that the AFA segment has some way to go to address its lack of diversity. But wealth, being slow to come by, tends to reflect how society was decades ago, rather than where it is today.

From an insurance perspective there are significant numbers of AFAs that advise only on wealth. Also, while many AFAs do provide insurance advice, the reality of an investment-based practice (which defines most AFAs) is that many clients are older, and they are not acquiring new insurance, so advice is relatively limited. I wonder if the FMA should add to their question on whether advice is provided on replacement 'To how many clients do you provide advice on termination of insurance?' - I suspect that advice on termination is a much neglected part of the whole process.

 

FMA on KiwiSaver Insights

The FMA has been working with the Government-owned KiwiSaver provider, KiwiWealth, in a project to make better use of behavioural insights to assist New Zealander's planning for retirement. Although this blog usually confines itself to matters related to insurance, it is an interesting, and positive move. It is evidence of the intention of the regulator to have a broader role in promoting positive developments in conduct, rather than merely policing breaches of conduct obligations. It is also well worth pondering the behavioural insights that can be applicable in the insurance sector. One which comes to mind is the UK regulator's (FCA) findings around annual reviews - a subject which could do with an upgrade in the insurance world.

Investment News NZ on AMP

Investment News NZ has a good article covering the AMP portfolio review. Link. The results were to be announced at last Thursday's AGM, but the announcement was delayed. The Investment News article is a good round up of the issues, including how the New Zealand business differs from the Australian one.

Please help: example, analogy, and presentation techniques wanted

Those of you that actually do sell and advise on insurance coverage, I'm here asking for help. A while ago I used to possess a great book of brief presentations for communicating the value of insurance, and covering some of the concepts that can be tricky to convey to consumers. I lost the book. I probably lent it to someone and haven't had it returned (if that's you, now would be the time, full amnesty). I have some others, but that was my favourite. I've searched for its equivalent online and cannot find it... so I would be grateful for some help. You can help in a couple of ways. Suggest equivalent books or guides, or tell me examples of stories or presentation approaches that you find good and I will be very grateful. Drop me details by email if you are happy to help. Thanks in advance - Russell H

Terminal bowel cancer patient shed bitter tears over colonoscopy

Andrew McMillan died due to terminal bowel cancer last year, he regretted not using his private health insurance to screen himself.

When he noticed blood in his stools in December 2014 he made an appointment with his GP and was referred for a colonoscopy. 

A large tumour was removed from his bowel but the cancer had spread to 17 of his 26 lymph glands. 

Click here to read more.