How to handle clients during the cost of living crisis

My favourite current quote is about averages. Something I picked up at MDRT recently: in one hand you hold a burning hot coal, straight out of the fireplace. In the other hand you hold a freezing block of ice, from a commercial deep freeze – very cold. On average you are fine!

Friday, October 27th 2023, 6:59AM

by Russell Hutchinson

Inflation has been in the 7% range, recently it was announced that it has fallen to in the 5% to 6% range. That’s good news, but it is still very high.

Much of that change will be the arrival of cheaper fruit and vegetables as we enter summer – so it is unlikely that we can expect the Reserve Bank to reduce interest rates very soon.

The impact of the cost of living will have been hardest on the very lowest income groups, who have high food costs as a proportion of their income.

They already have few options to reorganise their financial affairs – so even small changes can cause desperate choices to be made.

It is this group I feel the most compassion for.

Renters with a good income are not experiencing as much inflation as people with home-loans. This is a turnaround from the last few years.

Those recent home buyers have been hit very hard.

The financial impact has been eye-watering.They are experiencing about a 28% increase in interest costs according to the Statistics NZ's recent Quarterly Economic Survey.

While some other costs have reduced to help offset that (transport costs are lower, for example) the net impact is one of the toughest budget squeezes in decades.

Not all the pain has been felt yet either – with some people still to have all or some of their home loan to roll off a low fixed rate and get switched to a higher one.

I have a couple of friends who had a large chunk of debt shift rate from 2.25% to 4.95%. Some shifts will be bigger.

This group could be between one in six and one in three of all households. If it feels like a lot more in your client base, that is probably because recent home-buyers are proportionally a greater component of most insurance and mortgage adviser client bases than they are a share of the total population.

In such a crunch we see a lot of budget advice.

As part of our regular quarterly reporting, we investigated what a range of budget services said in their tips for cutting expenses.

Insurance ranged from being in the top five items to cut for some services, to being not even in the top 10 for several others.

We believe that if your service is seen as the one which protects the others, then you should be able to achieve some conservation in many circumstances.

Consumers unaware of their options are more likely to cancel cover entirely than explore reduction options effectively, which is where you come in.

Of course, a client who is on the verge of losing their house will probably cut insurance regardless. In that circumstance preserving the relationship is probably the fall-back goal.

Households that eventually recover from financial shock, would probably like to keep working with someone they know who was helpful in a tough time.

Recognising that there are no silver bullets that make the problem go away, being proactive and solution-focused is the right intention.

Tags: Russell Hutchinson