moneyblog

David Chaplin on KiwiSaver

Some useful points are made in David's article about the KiwiSaver review. However, the terms of reference of the review are far too narrow to give any hope to anyone with more fundamental concerns about KiwiSaver.

UK: SHIP to Become Equity Release Council

Over in the UK the Safe Home Income Plans group intends to become the Equity Release Council. The new grouping is similar conceptually to the approach being adopted by our own Financial Services Council. It is a broadly based group that seeks to attract the support of lots of stakeholders in the sector, right the way up and down the value chain: product providers, distributors, and service providers. Although this can increase scale and influence it can mean bringing some conflicts within an organisation - after all participants sharing a value chain frequently disagree over where costs and benefits should be shared through the chain.

Here in New Zealand the Safe Home Equity Release Plans Association (SHERPA) has decided not to take this approach, instead preferring to collaborate with others, such as adviser bodies, on matters of mutual interest when they arise.

 

Let Some More People Out of KiwiSaver Early

I would just like to make the case for two additional types of situations in which people should be allowed to withdraw some or all of their KiwiSaver funds. Before I do that, we should just review the current reasons allowed for withdrawal and the rationale for them:

• Buying a first home
• Hardship
• Serious Illness
• Permanent Migration

You can check out the details at the Inland Revenue's KiwiSaver site, at this link. However, the reasons are basically these:

• Buying a home is highly correlated with well-being in retirement. So we encourage people to achieve that lfie goal.
• Hardship is obvious - no point retiring Okay if you're so broke that you, or your family, are in dire straits right now.
• With serious illness/disability it's again obvious: we should let you enjoy your money while you can.
• Permanent migration is simply about natural justice - is the money yours or isn't it?

I would like to suggest two more circumstances in which funds could be withdrawn which are, I believe, entirely consistent with these principles.

• To obtain a degree
• If your life expectancy means you are likely to die before the age of eligibility for New Zealand superannuation

Higher education is so strongly correlated with increased income that if you haven't already got a degree, and you are still young enough to benefit from many years of increased income should you complete one, then it's simply enlightened self-interest to allow a person access to some of their KiwiSaver funds. Once qualified they may well contribute far more. Allowing some access right now will encourage them and reduce the student loan burden.

Life expectancy is a cousin of the existing terminal illness facility. A good number of people while not current ill or disabled will have a much lower life expectancy. For them we are doing them a disservice by requiring them to save money they will never get to enjoy.

 

How Many Insurers do Advisers Have Access to? Numbers Just In.

Results just in from the Quotemonster survey of how many companies advisers have access to:

Of course, Quotemonsters would have access to many companies. Those that don't aren't likely to want to highlight all the companies that they can't deeal with. A good guide for consumers might be: "how many companies did your adviser present and discuss before making a recommendation?"

Latest Goodreturns Piece

I ask the question "are you a broker?" over at goodreturns, referring to it's old-fashioned meaning, not it's meaning as defined in the Financial Advisers Act. Check it out over there.

Insurance Book Recommendation

I've just read Rick Vassar's book "Hide! Here Comes The Insurance Guy..." and beyond the hokey title this is actually a very good little book. Mr Vassar is obviously an intensely practical risk manager. Although his experience relates primarily to property and casualty insurance (what we call fire and general) there are generic lessons on risk management as a discipline and much of what he says is typical of all types of insurers.

There are many great passages in the book, but in my favourite our hero describes a scene in court. The opposing party's lawyer was examining Mr Vassar and showing some exasperation he asked to go off the record and exclaimed "what a scumbag". After being put the next question our hero said that he'd just like to say on the record that the lawyer had just referred to him as a scumbag off the record.

Swiss Re Sigma Report

This is a useful report - well worth a read, especially the statistical appendix, which has premiums written, growth rates, per capita spend, and so on. Some of this will form part of my next article in Asset which I was researching today.

New Zealand Insurers and Advisers on Facebook

After my post on the use of social media I thought I'd quickly scan Facebook for Kiwi Insurers or Insurance Advisers on what is arguably the worlds most powerful social media engine. Can you guess what I found on typing the word insurance in?

Not a thing.

That's right. At present, not a single New Zealand insurer is doing anything that gets it in the first half a dozen pages of search results on Facebook. Not one.

• The first seven results are all internationals.
• On the first page after this group you get me, and you get my running coach and all-round experienced insurance executive Aneel Ravji.
• On the next page you get the first New Zealand adviser - from BraveDay - well done Brave Day, you appear to have a social media pulse! A quick check of their website reveals a smart looking site and the ability to follow them on Twitter and Facebook. Given the number of tweets there is obviously a commitment to regular content creation as well.
• On the next page you get a couple more insurance staff who have obviously made a few posts.

I had written about how corporates should engage some consulting advice in order to get a better presence in social media (and received a good natured ribbing for the apparently self-serving nature of this comment). Although I wasn't actually holding myself out as a consultant in social media. But how about this: since there is virtually nothing happening, you don't need rocket science. You just need to pull on you bathers and hop in: the water is warm!

Some companies, it has to be acknowledged, have used social media to good effect on a campaign basis. Sovereign is one, with their recent game about life choices.

Solicitor Struck Off for Referring to a Related Party

This is a fascinating case, reported by Natalie Holt, where a solicitor has apparently been referring people to a financial adviser that did not meet the required definition of independence. There were other factors involved as well, including a loan from the financial adviser to the solicitor.

Although this story was really about the rules the professional body for solicitors enforces, it may suggest to advisers familiar with the provisions of our Code of Practice to consider the related party issues carefully.

Check out the whole story at UK Money Marketing.

Quotemonster Statistics

Quotemonster has cool statistics for those with login accounts (grab one, its free) here is the selection for last week:

• Average amount of life cover quoted:        $374,000
• Average amount of Trauma cover quoted: $134,700
• Highest annualised premium:                   $59,498
• Average time taken to prepare quotes:    9.15seconds

Europe's Biggest Fear

A succinct run through the mechanics of a European bank run in peripheral economies and why it might be hard to prevent. Link.

Is New Zealand an Emerging Market for Insurance?

This is a fascinating paper, and not merely from a humanitarian point of view. Students of marketing will be interested in the lessons for bringing the uninsured into the product in developed markets as well. Then as I read the data on emerging markets it seemed to me that New Zealand is in some respects still an emerging market for insurance. Worth a look.

Great Insurance Pitches of the Past: Could Father Be Mother?

Check out this gorgeous insurance advertisement from yesteryear (Hat tip: Jenny Bow at AMP)

Don't you love the slightly sinister "how would your children fare if everything was left to father?" This is highly segmented advertising - designed to activate the buying concerns of "mother."

Of course, as most parents will know, although there is a lot of sharing in parenting many families still have a primary income earner, and although that is often the man in a couple it can be either parent. Come to think of it, that parent can be of either sex. The contemporary update of this concept is called "The alternative diary" which takes the primary income earner through how their day would change in the event that they had to be a primary caregiver instead.

 

$479 Million In Dog Bite Claims

In the USA $479 Million last year in dog bite claims. Wow. Bow wow.

NZ Insurers Should Use More Social Media

My experience is that New Zealand insurers are at the very beginning of the journey in using social media. This is a shame, because Kiwis are quite good at adopting new ways of doing things, and that applies commercially, as well as socially. What's more, social media plays in exactly the right space for our industry - intangible, emotive, about stories, trust-based. There are so many intersections with our world that are actually stronger for insurance than they are for almost any other sector.

But it is hard.

On the flip side of the coin companies have to learn a whole new media language. They tend not to have consumer-focused marketing staff - after all, most of the money is made through advisers or vertically integrated sales teams (bank channels, mortgage brokers, etc). If they turn to their advertising agencies they may not be well served. Knowing that they know so little they fear being taken on a journey which could all just turn out to be an expensive mistake.

This infographic underlines just how hard it all is.

There is but one choice:

Developing internal knowledge is vital, but since you don't have it you will have to bring some in from outside the business. Forming a working group comprised of an internal marketing specialist, a favoured external adviser business to provide execution, and third parties (yes, consultants) to help develop strategy and provide the initial baseline knowledge is probably the only way to start learning in a practical, meaningful way - that is, a way which will contribute to sales generation within its first financial year.

Developing Metrics in Product Research

Each of the items in our product research is built on four mandatory pieces of data:

1. An assessment of the definition for the item - which could be termed "how easy it is to claim"
2. A score for incidence, usually based on third party research
3. A score for frequency, usually 1, where a benefit can be claimed only once
4. A score for the amount payable under this benefit, as a percentage of the total claim scenario

We multiply the definition score by the other factors to arrive at the final item score, which can then be further modified by a readability rating.

Now we're looking to expand the metrics available - we can, for example, average all the definition scores across the product (rather than by item) and come up with a score for 'claimability'.

We could do that with the incidence to score 'breadth of cover' and with amount to give a rating for how much is paid across the entire product.

In addition, we're currently exploring how we'll improve the financial rating of companies. At present they publish their rating under the insurer comments item in the research. However, ratings aren't strictly comparable: an "A" with one rating house can be worth only a "B" with another.

Comments and suggestions welcome - pop them through by email.

PAA Roadshow

The PAA has a national roadshow next week: 28th – 31st May. It’s on ‘CPD 101’ and a structured session, consumer research undertaken by AIA, friendly business guidance for members and Professional indemnity.

Life Insurance is Complicated - David Chaplin at The Herald Takes Up the Story

It is rare that the sleepy little business of life insurance makes the pages of the mainstream media. David Chaplin has picked up on our statistics about just how complicated the life insurance business is. It's a sobering thought when considering how to go about making your insurance purchase. Read the whole article over at The Herald website, link here.

Innovation in Life Insurance

On my run yesterday I went past a building site where the scaffolding was wrapped in plastic. You see it more and more these days. It makes a lot of sense. I guess it makes conditions better for workers, can extend the weather conditions in which work can be done, protects exposed materials (such as wood and fresh paintwork) and so on.

All told, a brilliant idea. Innovative - also, it's not super high tech. Scaffolding has been around hundreds of years and plastic wrapping at least 40. In fact, in building there are innovations all the time. Sometimes they aren't good: mix plaster monolithic cladding with untreated timber, for example. However, over time they have been nothing short of revolutionary. Decade after decade there are smarter, cheaper, lighter, more varied, more interesting, more attractive, more secure, more environmentally friendly, and easier ways of doing things in building.

It's even more impressive when you think that homebuilding isn't exactly considered to be a 'hot' industry.

It's a good comparison with life insurance because the ideal target markets are similar. The biggest segment of the industry serves families. Mainly families with children.

But in the life insurance business innovation has been nothing like as good. We've had income protection and trauma cover. Don't try to tell me that adding Human Variant CJD to Trauma Cover counts as innovation either. That doesn't even rank with windscreen wipers in my book (a device that seems to have been developed by several people at once in different places, but in a recognisably workable form in 1903, by the way).

Compare the industry with some of our financial cousins (say, sharebroking) and it's even worse.

E-apps are just beginning to make an impact now in our life market. The London Stock Exchange moved from an 'open outcry' system of handling trades to screen-based trading. Get this... on October 27, 1986. That's more than 30 years ago. I reckon it will be at least 50 years before we get rid of paper apps.

Just recently I was shown a chart which describes something so obvious that it shouldn't be cool to write it down any more. It's the chart behind the proposal to develop every 'adviser desktop' that I've ever seen (like the universal growth chart that's used by every internet business during it's IPO) and it is no less vaid for being familiar. Here you go:

This is but one issue. There are a number of others - major ones - we could focus on. Marketing problems, document problems (paper documents? huh?). Almost neolithic documentation of variations (have you ever seen a really well-presented endorsement?). Errors in data. Claims processing and data management. You name it, we've got problems with it.

I know that wherever there are unique transactions - especially one which involves so much non-standard data, there will be problems. I merely wish to point out to those wondering whether there is much scope for innovation that there is - plenty - it jsut might not lie with finding a new scary, and crucially rare, medical condition and adding it for no cost to the Trauma product.

The Enduring Advisory Firm

Hat tip to Tony Vidler who pointed out this article. The checklist below is gold for anyone looking to break out of merely being a good adviser and shift to building an enduring adviser business.

An enduring advisory firm has five key qualities:

1. Consistent profitability
2. Transferable value
3. Loyal clients
4. Career growth for employees
5. Multigenerational client appeal

Please read the full article at this page, by Mike Tibergien, at AdviserOne.