2 Reasons to Examine the Research More Closely............

The Financial Services Council research report from Massey University on under-insurance in New Zealand is an excellent initiative and should be roundly welcomed by all stakeholders.   Massey University

Any piece of analysis that helps us understand the financial services industry, its impact and relevance to the community, and more importantly, if there are improvements and inefficiencies to be made, should be acknowledged, appreciated, and supported.

The quality of the research methodology appears to be impeccable, and the statistics collated in such a manner as to render the report readable by non-expert observers. In the context of the report highlighting product complexity as a barrier to higher levels of product coverage, this is an excellent and effective approach.

The F.S.C. should also take a bow for instigating what was, no doubt, a costly piece of research.

However - and there's always a 'however' from the Laird - there were a couple of issues I thought worth mentioning.

Firstly, the claim that there is "no indication that there is a national crisis with take up rates of life insurance ownership". I suppose it all depends on how you define 'crisis', but suggesting that the take up rates are the similar to those in the US and Australia doesn't exactly fill this scribe with confidence.

Having worked in Australia, I'd suggest that most commentators and observers would be critical of the personal financial protection levels there also. A similar view was constantly expressed by my US colleagues while I was retained by American International Group.

So while we may not be faced with a 'crisis' in the levels of personal financial protection in NZ, there must inevitably be concerns that sometime in the future, if under-insurance continues at the present levels, there will be something of a crisis emerging, and that the same fate may well befall our American and Australian counterparts is of no comfort whatsoever.

Secondly, the conclusions regarding the cost to government need to be examined. The direct loss of tax revenues is analysed in the report, and found to be relatively insignificant, but the cost to the government, i.e. to the taxpayer, via the public purse of providing financial assistance rendered to those temporarily disabled, is not quantified as the information is unavailable.

I take issue with the conclusion that the total cost amounts to only $2.2m per annum, and is, by implication, not significant in the grands scheme of things.

If there were zero penetration rates of life and related risk insurance products, then there would be substantial issues to be faced by government. It follows therefore that, as we have "the third lowest penetration of insurance among 31 OECD countries, with only Greece and Mexico having a lower insurance penetration", we're debating the degree to which the public purse is exposed to under-insurance, and lagging behind another 28 territories in the OECD countries again fails to inspire confidence.

Further public commentary from the author of the report suggests that the quantitative aspects of the current levels of under-insurance are well appreciated.

However, I'd submit that there is only a superficial understanding of the qualitative aspects of the industry contained in the research, and that further work is  required in order to ascertain where the real (or perceived) value added by financial advisers occurs, why providers continue to retain legacy practices, and what the consumer can actually cope with by way of product complexity and pricing.

It's all very well to conclude that products are too complex and too pricey - but where does the level of  price/complexity become problematic for the consumer?

A good and substantial body of research work, but not worthy of a first class honours award.




The Laird