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Dormant products drive replacement business: Adviser

There are calls for insurers to do more to help clients with “dormant” products that are becoming increasingly uncompetitive as the insurance market evolves.

Friday, September 23rd 2016, 6:00AM 4 Comments

by Susan Edmunds

Katrina Church

Katrina Church, of Insurance People, said she was concerned about the number of policies still in force in the market that had been superseded. 

“As a broker, I have got to make sure that I’m acting in the client’s best interest. We talk about churn and replacement business; I cannot sit on a product that was written 15 years ago as a trauma product when I am worried whether or not the cancer definition will get paid out,” she said.

“So the industry has got to take some responsibility for that; the carriers have to do something with their dormant product rather than let it sit and give us a reason to actually replace it. I think that has not been picked up by the regulator at all. I think the product is a lot more complicated, our client’s health is a lot more complicated.

“What I would like to see more insurers doing is not have dormant product but actually have product that will have pass-backs because it really makes our job a lot easier. The conversation about whether the product could be better somewhere else goes away and you get to have a conversation around affordability, the investment that they want to put in there and whether the cover is right and the levels are right,” she said. “That’s a better conversation to have than whether the Tower trauma wordings are up to speed.”

Industry commentator and former head of AIA and AIG Life Australia David Whyte agreed it was a problem but said there was no obvious solution. “It bothers the companies as much as it bothers advisers and clients. But with changes in systems, actuaries, reinsurers, sometimes things fall through the cracks.

“There are some products out there with contractual obligations in them that companies aren’t geared to handle.”

But Naomi Ballantyne, of Partners Life, said some so-called “dormant” products might be closed to new business because the benefits became unsustainable in terms of insurer profitability.

“These benefits are very beneficial to the client and cannot be replaced. So being closed for new business does not mean these products are bad for the consumer and therefore ‘ripe’ for replacing – in fact the complete opposite might be true.”

She said even if a client’s existing policy was not as competitive as what was available in the market, if their health had deteriorated and they could not move, maintaining the cover was important.

“Although in these circumstances, I agree that the company could do what we do and automatically, retrospectively apply beneficial upgrades to those existing clients so they are not stuck in a decreasingly competitive product.”

But she said advisers were required to help their clients through these decisions, and any product that was not competitive should potentially be replaced, not just dormant ones. “This means the adviser is required to understand the existing product to compare the benefits and risks of keeping it versus replacing it. This sort of work is what current upfront commission levels in New Zealand are meant to compensate advisers for.”

Tags: Insurance Advisers Partners Life

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Comments from our readers

On 23 September 2016 at 3:49 pm Licensed Adviser said:
There is a standard tension in business. The insurers desire to maximize profit, they do that by having the highest prices and the poorest payout potential possible The tensions is with the market, that would replace poorer or more expensive products.
The insurers are forced by the market (read advisers) to improve product and temper price increases.
One other options is to complain to the regulator about churn, this should keep the competitive tensions away.
On 26 September 2016 at 8:35 am Backstage said:
Another situation that may reduce the need for replacement is removing or going forward stop renewal commission being vested. This will allow the new adviser to receive something for their work. I appreciate this will not be a popular thought and many will argue against the idea but if we concede that the client owns the client and they can shop where they like it helps. It also may help advisers to offer better servicing... i mean its just 1 part and i know that will not be popular. Years ago when i started we didnt have vesting...
On 26 September 2016 at 3:05 pm Dirty Harry said:
Backstage
It will be popular with poachers. But the game keepers will have a much bigger voice.

Say you wrote a policy on the reduced-upfront-higher-trail deal. Your BDM has been banging on about enhanced trail flows, lifetime value of the client, and the value to your business and you decided that sacrificing the upfront was a good investment.

Then some other clown comes along and shoves a letter of authority under your client's nose. His telemarketers promised at least 20% cheaper premiums, and he told the client he just needs to review the info from their insurer.... The client signs the form not knowing the implications....
Just think about that for minute.

Not every adviser operates to the same standards of integrity and transparency. This has happened and the client was mortified when I explained what they had actually signed. They immediately re-signed back to me, apologised, and told the other guy where to go.

May I suggest the argument about trails being transferred to avoid replacement fails because it suggests there is little else to support the replacement other than the adviser's own interests. Perhaps the client would be better served by their original adviser, who owns the trail.
On 27 September 2016 at 8:57 am Backstage said:
Dirty Harry, unfortunately you are right and this did happen as time rolled on until vesting occurred. I am sure you as I do have clients who have chosen to have me help them but i have actually received no reward when they have changed their account to my agencies... i also agree with you on the basis that why should it be the good adviser that gets penalised for some who could be involved in activity that does not benefit a client adequately. However... dont we factor attrition into our business plans all the same? Just to another point... i couldn't care less about about a BDM that wobbles on about high trails and lower up fronts etc... I have a business to run and whilst they really come from an insurers perspective (uping the exit barriers) ... it sactually still does not ensure them or us retention. A dollar today is worth more than a dollar tomorrow (although inflation is low, but that dollar can be placed somewhere to obtain good growth).. do take your point though.

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