"Society is always taken by surprise at any new example of common sense"
Grateful thanks to Ralph Waldo Emerson for the title quote - and now for some good old common sense from both sides of the Tasman... Following up on the last article on commission, lapses etc., it’s pleasing to report that some common sense on the issue seems to have prevailed from our nearest neighbour – something we should perhaps note also.
The Working Party set up to look at life insurance commissions has correctly concluded that commission remuneration is necessary for the product to do what it is supposed to do – i.e. provide financial protection for its purchasers.
While recognising that the prevailing distribution models require a commission element to be present, the Working Party also concluded that ‘high up-front commissions were inappropriate’.
Of course, how ‘high’ commissions should be is relative.
It’s relative to the market in which you operate, relative to the business model being deployed, and relative to the competition being faced.
Australia has a more prescriptive and intrusive regulatory regime than NZ, and there is a broad range of lobbyists, representatives, politicians, and commentators who claim to have the ‘answer’.
Not unlike NZ – only there’s more of them over there.
But in this case, the response is appropriate. So now that the principle has been agreed - we’re now haggling about the price.
For the record, I repeat my previous suggestion - let the market decide.
Some common sense closer to home refers to the call for more precise terms of reference in handling issues of non-disclosure in the insurance space.
Let’s dispense with one recurring myth straight away - insurance companies do not seek to avoid, reject, delay, or deny valid claims.
Across all three territories I’ve worked in as an adviser, a corporate slave, and whatever it is I do now, I have not encountered an insurance organisation that believes there are even the slightest advantages in trying to slide out of paying valid claims.
There may be some among the consumer lobby who will be at pains to dispute this statement, but in response, I respectfully submit that the examples quoted are unrepresentative, atypical, and selective.
Insurance companies in NZ are populated by people who want to do a good job. I'm an advocate of the concept that nobody turns up at work to do a bad job. Insurance claims submissions are handled by New Zealanders on behalf of policyholders – also New Zealanders, and the former group doesn't suddenly become part of some evil conspiracy the moment they sit down at their desks on a Monday morning.
In fact, most insurance companies I’ve been involved with – directly or indirectly – regard claims settlements as part of their positioning statement to the market, and treat any claim dispute very carefully.
So with due regard to some of the more outlandish statements made by ill-informed consumer advocates, I would suggest a more measured approach is adopted.
But just for the record, consider this. The industry bodies report a figure of between 9% - 11% of insurance claims are fraudulent. That is, the claimant deliberately mis-states the value, the circumstances, or the cause of the claim.
Now translate that to the Christchurch earthquakes repair bill of NZ$40bn and contemplate the impact on the wider NZ community, if the fraud figure is only 1%.
Fortunately, so far, the incidence of fraudulent claims has been very low in the Christchurch rebuild, so hopefully this continues.
But suggestions that companies are delaying settlements deliberately are just nonsensical. Through escalation, repair costs only ever increase over time, so why would a company delay settlement?
There are, and always will be, complex claims which require legal adjudication, particularly when the circumstances are without precedent.
To this end, I endorse the call for a more precise framework around which to manage the issue of non-disclosure for the life insurance industry. Having been on both sides of claims cases which have been vehemently disputed by both parties, it make sense to lay down some more precise ground rules to avoid continual subjective interpretation – or misinterpretation – of policy conditions around the non-disclosure issue.
Over the past few days, I have had a look at some life insurance company application forms and marketing material, and, to be honest, I’m not sure what else can be reasonably done to bring to an applicant’s attention the need to disclose and declare all aspects of their health, history, and well-being.
I fully appreciate that consumers cannot be expected to remember every last detail of their personal health record, so here’s my suggestion to reduce the opportunity for dispute over non-disclosure.
Most companies subscribe to the Konnect Net Ltd* medical data retrieval service, and by now, I suspect most G.P. practices and medical centres also participate.
So why doesn't someone take the lead and set up a deal with Konnect Net Ltd to retrieve medical notes for every application received?
Of course there will be a cost attaching, but I saw some pricing models a few months ago, and such an initiative is totally viable.
If you factor in all the direct and indirect costs around disputing claims due to non-disclosure, then this proposal makes even more sense.
Whatever the industry response to non-disclosure – inadvertent or otherwise – may be, one thing is certain – the issue and the ill-will generated by the current state of affairs will not disappear, and some measures have to be adopted to deal with this sooner rather than later.
*I declare and disclose that I have no direct or indirect financial or commercial interest of any description in this company.