Advisers often talk about possessing the skill-set of field underwriting where they use their experience and knowledge of the application process to position a new business application in order to achieve the best possible outcome for a client.
As part of field underwriting, the experienced adviser can precondition a client to any likely problems, for example, loadings, exclusions, and so on, in respect of their application.
Notwithstanding the skills possessed by many advisers in the area of field underwriting, it would be fair to say that fewer advisers possess the same skills in claims management.
Too often, when a claim is made, the adviser will simply complete the claim form with the client, submit it to the insurer for assessment and only seek to become reinvolved if the claim runs into problems such as delayed assessment or even claim denial.
Of course, to be fair to advisers, they have a business to run and in order to run a business profitably they need to be remunerated for the work they or their staff perform.
Unfortunately, there is currently no formal provision for advisers to be paid for the skills they would need to obtain and the work they would need to do in order to assist clients with a claim.
In saying this, it is acknowledged that some advisers will charge clients a fee for assisting with a claim; however, for many advisers charging a fee in these situations has never ‘felt right’. Also, it is possible that an appropriate fee would be out of reach of the client as provision for this in advance may not have been made.
Notwithstanding the above, many advisers feel compelled to assist clients with their claims as to do otherwise, again, does not feel right. In doing so, these advisers can jeopardise the profitability of their business and may compromise the service they can offer to other clients.
Meanwhile, the insurer is faced with having to fund by way of staff and infrastructure costs, the major part of the claims management process, which in turn impacts either on product profitability, premium costing or both.
Clearly a less than optimal situation for all parties.
Fortunately, there are alternatives — one of which already exists in principle and the other of which would not be difficult to implement.
Lump sum claims
By definition, assisting a client with a lump sum claim — that is, term, trauma, total and permanent disablement (TPD) — is generally a one-off situation. Multiple lump sum claims are the exception rather than the rule.
As such, compensation for the adviser who assists in the claim should similarly be made on a one-off basis, that is, by way of a lump sum.
Provision for this could easily be facilitated by the adviser recommending to the client that the insured benefit be increased by an appropriate amount with this additional amount being earmarked to compensate the adviser for the time they would spend assisting the client when a claim is made.
The additional amount may vary depending on the type of insurance, that is, generally there is more work involved in a TPD claim than a death claim. So, for example, if the adviser had a charge out rate of $250 an hour, they may seek to increase the term insurance benefit by $5,000 and the TPD benefit by $7,500.
To provide both the adviser and the client with certainty, appropriate agreements could be entered into ensuring the funds would be paid to the adviser, but also setting out the services the adviser would provide in order to warrant the benefit payment.
To further formalise the arrangement, there could be a charge out basis along the lines of a fixed initial fee and an hourly rate with provision for a refund to the client if the claim was settled more quickly and easily than expected.
Other advantages of the above would be: (i) the client is going to be more effectively but appropriately ‘locked in’ to the particular adviser; (ii) the adviser is less likely to be ‘cut out’ by an accountant or solicitor when a claim is paid; and (iii) advisers will have a sound business reason to increase their claims management knowledge and skills thus increasing the likelihood claims management procedures will go more smoothly.
A shortcoming of the above arrangement is that, if the claim is denied, the benefit amount would not be paid and thus the adviser would either not receive financial compensation for the work done or the adviser would have to bill the client. This shortcoming would in part be mitigated by the fixed fee mentioned above including a component covering losses incurred for unpaid claims.
Revenue claims
The nature of income protection and business expenses claims is such that they may continue for months and, with income protection claims, for years.
Therefore, not only would it be difficult to contractually compensate the adviser for claims management assistance by way of a lump sum, but also this type of compensation would be inappropriate.
The solution, while not currently in existence, would not be difficult to provide.
Insurers would simply need to make available an optional benefit along the lines of a Claims Management Optional Benefit — if the life insured is receiving a disability benefit, the benefit amount will be increased by $(amount) with the additional amount being paid to the then servicing adviser.
The servicing adviser would be responsible for assisting the life insured with, for example:
> completion of initial and ongoing claim forms;
> explaining workings of benefits under the policy; and
> the collection of claim requirements.
In other words, a regular, indexed fee would be paid to the adviser such that they would assist the client in ways mandated within the policy.
From the insurer’s point of view, one potential advantage of this would be a material reduction in their claims costs as they would effectively be outsourcing certain claims management facilities to advisers with the cost spread among all policy owners by way of the premium paid for the Claims Management Optional Benefit.
All parties win:
> the adviser is financially encouraged to and rewarded for gaining improved claims management skills;
> the client receives greater assistance in managing their claim;
> the insurer’s costs reduce.Food for thought!<[etk]> <[stk -5]><[etk
Col Fullagar is the head of life risk at Genesys Wealth Advisers.
