When providing financial planning advice that does not include risk insurance, financial planners not only create a compliance gap within their business, moreover, they are missing out on potential income which ultimately adds value to their business.
Those advisers who have made a conscious decision to specialise in the risk insurance market have never had it better because their financial (investment) planning counterparts have, in many cases, decided to walk away from a lucrative part of what has been, and should be, a captive audience.
As occurs with managed funds, Lonsdale has a recommended list of risk insurance products that has been formulated for use by its advisers. This is reviewed by a committee at least quarterly and takes into account a variety of issues including a specific selection criteria (which in itself is reviewed at least quarterly), qualitative and quantitative research, administrative support and efficiency and underwriting and claims management processes of life offices.
It has been suggested that such a process places ‘Lonsdale’ in a better position to see products for their true merit. In addition, however, adviser networks of this nature demand this process be followed and strictly adhered to. Any suggestion that products are not being selected on this basis would result in severe penalties to those responsible for the process.
As a result, insurers providing sound definitions in key areas (definitions of total and partial disablement spring to mind), but are also able to differentiate themselves with worthwhile optional benefits (for example, expertise in the business insurance market), will often find themselves leading the pack.
By way of example, income protection insurance has essentially been designed to pay a benefit in the event of total disablement for a period in excess of a chosen waiting period. All the bells and whistles in the world count for little if the definition of total disablement is not clear or if it makes it difficult for a client to claim benefits.
And if the insurer has an efficient underwriting process and a good claims paying and management record, then ladies and gentlemen, we have a winner! Unfortunately, there are not many around who can lay claim to having fit all the pieces together.
However, the final piece of the jigsaw for advisers, and this should not be underestimated, is the ability to build relationships with insurers. Get to know the way they do business and vice versa, and get to know the people who process and underwrite the business. You will be surprised at how much easier the application process can be if people know who they are dealing with.
Obviously the risk insurance industry has had well-publicised problems in the past, chiefly, claims management and resultant losses via the income protection range of products. Reinsurers are now playing harder in terms of some of the benefits that have been, but will no longer be offered and also by way of stricter underwriting guidelines. This has impacted on advisers and clients by way of, in some cases, significantly higher premiums.
This has, however, resulted in a rethink by a number of insurers in terms of the overall income protection insurance product offering. Many insurers have, in addition to guaranteed or agreed benefits contracts, reintroduced indemnity-style contracts and restricted the optional benefits available. At the very least, this provides the adviser and client with greater choice from a pricing perspective.
The insurance industry has also been impacted over the past few years as a result of higher standards in relation to education and client advice. PS 146 is simply the next phase. The perception is that many experienced insurance advisers will, or have already left the industry because of this. This has been a boon for the insurance advisers who have remained in the industry, however, from a financial planning perspective, it has left a gap in the client offering.
There are many financial planners out there who feel uncomfortable talking to their clients about insurance lest they be seen as salespeople (odd, given that is what they are, albeit with a different title). What these planners don’t understand is that they are often best placed to sell insurance because of the position of trust they hold with their clients. And like anything else, understanding the process is often simply a matter of practice. Besides which, I think there are more disadvantages in outsourcing to someone who is not aligned to your business or your network. (If I work in new car sales at Ford, I don’t refer my clients to the nearest Holden dealership for service and parts.)
Interesting points (or an absolute load of rubbish), I hear you say. Well, hopefully everyone who outsources and is happy to continue down this road has considered the succession planning issues surrounding this, just as they have for theirs and their clients’ businesses.
What if the outsourcer decides to exit the business? Can I be sure that I will have the same professional relationship with whoever takes over? Do I have an agreement in place which stipulates who retains the client files and who has servicing rights? Do I get compensated if the servicing rights are sold? Do I have a say in who the business is sold to? Do I really want to get involved in this scenario?
Another concern is that insurance companies have not necessarily identified the independent financial planning market as one worth vigorously pursuing in terms of potential growth in risk insurance sales. Certainly my experience would suggest this is the case (although there are some exceptions). At the very least, they have not persisted in their endeavours.
How often do you hear or see the word ‘opportunity’ thrown around in our industry. There seems to be plenty of them. I would suggest though that there are very few which are core to most of your clients financial planning needs. Not a nice to have … a must have.
John Ashton is national insurance manager for LonsdaleFinancial Group.
