3 Home Truths About Life Insurance Distribution in NZ..........
The Life Insurance industry in New Zealand has been passing through some turbulent times lately - regulation, legislation, take-over rumours, focus on capital management and capital adequacy, systems problems, and a host of other issues all converging to make life more difficult than usual for companies, advisers, and consumers. My last post suggested that Life Insurance isn't simple - and the distribution strategies, practices, and pressures are no less simple.
However, what is pretty easy to understand - and here's HOME TRUTH #1............
NEW ZEALANDERS ARE SERIOUSLY, GRAVELY, AND BADLY UNDERINSURED!!
Now, this may not come as an epiphany to many of you, but the gravity of the issue has been highlighted by the Financial Services Council in a series of releases, and featured in an article in the NZ Herald 18/02/12 - http://tinyurl.com/ajzw4sc. Here we can see some facts and figures which should raise alarm bells at all levels of the community - even if they are considered excessive as claimed by some. Even if the levels of underinsurance are overstated, the shortfall in financial protection cover for New Zealanders is a national disaster and should be tackled by every means at our collective disposal.
I don't just mean the financial services industry, because the plight of financially distressed families or businesses in the event of death or disability of bread-winners or key directors, partners, and/or staff is a community-wide problem.
The research also indicates that a significant percentage of New Zealanders just don't understand the value proposition that life insurance and related protection benefits offer. Approximately, 60% of the population are in this category. This means that the remainder are likely to be served by a financial adviser of some description or other.
So the intermediated distribution model works well for a minority of the population, and let's be honest - with such high commissions being paid, why would an adviser chase the lower end of the socio-economic spectrum who can't afford to pay premiums loaded to carry over 200% upfront commission?
Home truth #2 - WITH LIFE COMPANIES PAYING THE HIGHEST COMMISSIONS IN THE OECD TERRITORIES, THOSE CITIZENS AT THE LOWER END OF THE EARNING SCALE ARE SEVERELY DISADVANTAGED.
Yes, I know that, in theory at least, high commissions should encourage the provision of service right across the demographic spectrum - but this is clearly not the case in reality. It's a weighty tome, but take the time to read the Massey University report - http://tinyurl.com/a3x7jjy - this should form the basis of strategy for product providers and advisers from now until the metrics show that the issue is being successfully addressed.
And for those advisers who squeal about sub-standard products being sold directly to the consumer, I'd suggest that they consider that if someone dies or becomes disabled, it is surely better that they have some form of cover rather than none at all, and looking at the penetration rate of risk products in NZ, the industry is failing to reach the majority of citizens either adequately, or indeed, at all.
With this focus on intermediated distribution fuelled by Life Companies chasing new business from what is largely a static population willing to buy life insurance, or engage the services of an adviser, the subject of financial protection fails to resonate outside the existing insured population. Look at the in-force industry statistics - deduct rate-for-age increases in premium, and deduct CPI increases, and the industry's annual growth rate is practically zero! Because the issue only reaches a limited audience, the remainder of the population is exposed due to lack of awareness or knowledge.
Home truth #3 - THE MAJORITY OF THE NEW ZEALAND POPULATION IS FINANCIALLY ILLITERATE.
During the Laird's time in Australia, the industry mounted a campaign to promote awareness of financial matters at secondary school level. As imperfect as this may have been, at least there was a credible attempt to address the prospect of kids leaving school totally unprepared by the education system to deal with even the most rudimentary aspects of personal financial management.
This is a travesty of which the financial services industry, all governments of whichever hue, and the educational authorities the length and breadth of the land, should be thoroughly ashamed.
PLEASE FEEL FREE TO SEND THIS ON TO ALL YOUR CONTACTS ON WHATEVER SOCIAL MEDIA PLATFORM YOU HAPPEN TO OPERATE - THIS IS TOO IMPORTANT AN ISSUE TO KEEP TO YOURSELF!!
Until next time
Slàinte mhor a h-uile là a chi 's nach fhaic
The Laird