|        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Wednesday, May 12th, 10:35AM


Latest Headlines

Are model portfolios an idea that is transferable to insurance?

Russell Hutchinson thinks a concept used in the investment world could well be successful in insurance.

Monday, December 7th 2020, 6:00AM

In the investment world model portfolios are a common way to quickly and easily translate a strategy from the general situation to a specific one.

A portfolio approach for difference situations (combinations of risk tolerance and investment time-horizon) are developed and tested extensively.

Advisers then do more to familiarise themselves with the solution suitability and methods for assessing which portfolio options are most applicable.

The insurance advice world tends to have a more individualised approach – both considering the individual client and the individual adviser - to recommending the ideal cover mix.

In some cases, tools such as capital needs analysis are applied through a variety of fact-finds and needs analysis tools.

Other advisers adopt a method of simply asking the client to prioritise and choose values - not forming a strong view themselves.

Another group may use tools which deploy concepts such as preserving levels of pre-catastrophe consumption in a post-catastrophe family or business.

Each have their strong points and weaknesses.

Whichever method you choose there is an engagement cost and a calculation cost that must be considered.

Model portfolios tend to simplify the advice process.

In the investment world the focus has been on assessing tolerance for risk and then assigning an appropriate portfolio. Here is what Liz Koh had to say about the use of model portfolios in the investment world:

“It simplifies everything from an administrative point of view. It’s also much more cost-effective to have model portfolios than customised portfolios. It cuts down the paperwork and takes away the risk for the adviser to make bad choices for their client.”

Could such an approach be translated into an insurance context?

A client could be assessed for risk tolerance and assigned to a category – based on major factors such as age, stage, income, dependents – and then a model insurance portfolio could be identified to meet those requirements.

Initially I thought of this as something of a sloppy short-cut to an ideal answer.

But the rigour of, say, a great capital needs analysis calculation is often thrown out when the client starts hacking at the plan to hit a budget envelope.

A great model portfolio, on the other hand, can have had substantially more rigorous back-testing in terms of real claims outcomes – much the same way a model investment portfolio can be back-tested for performance and risk.

Actual risks in individual calculation – due to human error, for example, or lack of client interest – can also be substantially reduced.

Model insurance portfolios are not a panacea, but they do at least deserve some consideration.

« Why life expectancy has improved – and how much further we can go?Smug or juggling? »

Special Offers

Comments from our readers

No comments yet

Sign In to add your comment



Printable version  


Email to a friend
Insurance Briefs

Tower builds partnerships with CSC and Sentro
Tower Insurance has continued its partnership push announcing it has formed new relationships with CSC Buying Group and InsurTech start-up Sentro.

nib Little Legends $10k Relay gives junior players a healthy funding boost
The nib Little Legends $10k relay, held during half-time at the Blues vs Chiefs match on Saturday, was won by the Pakuranga United Rugby Club.

nib helps protect future rugby stars
nib New Zealand has partnered with the Auckland Blues Super Rugby Aotearoa team to launch its nib Little Legends Little Smiles initiative, giving 1000 junior rugby players OPRO custom-fitted mouthguards – the same ones worn by the professionals.

Insurance professionals get time to shine
The Australian and New Zealand Institute of Insurance and Finance (ANZIIF) has launched an initiative aimed at showcasing the success of insurance professionals.

News Bites
Latest Comments
Subscribe Now

Mortgage Rates Newsletter

Daily Weekly

Previous News


Most Commented On
About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox
Site by Web Developer and