Recent modelling from Zurich shows that – all else remaining equal – advisers will have to engage and service a greater number of clients if they are to continue to grow their businesses in the post-Life Insurance Framework environment.
However, the ability to engage more clients with their advice cannot happen in isolation. It will be the combination of greater efficiencies – in systems, client engagement, and in processes – that will ultimately deliver these numbers. And, of course, overarching all of this is the foundation piece that impacts the entire advice proposition – product complexity.
This is an area that has escalated in importance, at a time when the primary point of competition is comparability of features on automated software[1]. The subsequent reliance on a research score to justify recommendation (recent research found 30 per cent of advisers rely totally on research scores[2]) has only exacerbated the product ‘arms race’, which ironically, is a situation not supported by the research houses at all.
Advisers need to become less reliant on a one-size-fits-all frame of mind when it comes to their product recommendations and to embrace a more client-centric one. Research cannot continue to be used as a static tool when best practice is, in fact, the ability to ask qualitative questions of clients in terms of their requirements for insurance.
It appears too that regulators are not looking at whether something is not the right or best product (as determined by a score); rather, they are asking: ‘Does the product take into account the clients’ objectives?’
The art of advice must return to centre stage. We must return to where advisers take clients through a process that unlocks the key considerations for different types of clients and simply uses research to support the process. In delivering advice in this way, products are better matched to clients and backed up by research.
It is the adviser’s skills, knowledge and relationship management that are the most critical aspects of the risk advice process.
Any advice solution must meet the best interests of the client. Research ratings are just one consideration in this process. The misalignment between research and product recommendations is partly to blame for the escalation in product features, which in turn has driven up negative claims experiences, prices, lapses and ultimate ‘bill shock’ for the customer. This is particularly the case when it comes to income protection.
Despite the fact that income protection sales have doubled in the past five years, the deterioration in the claims experience has seen a cycle of losses that are challenging profitability and demanding higher premiums from customers. This cycle of ‘bill shock’ looks set to continue as insurers come to terms with the new actuarial tables produced by KPMG. It is now incumbent on the profession, which includes advisers, insurers and AFSLs, to address these imbalances caused by competitive research and the compliance-driven product development landscape.
The solution? For insurers to support a strong and engaged advice force that continues to deliver clients what they want. In the case of income protection, the disparity between features and the base benefits has created two fundamental issues:
- Pricing has not kept up with the customer experience of the enhancements.
- A significant number of Australians have been priced out of the income protection market by not having access to a product, through advised channels, that meets their core needs.
In the current climate, a core product will not rate highly compared with its ancillary-laden peers. These additional benefits that are being provided by the escalation in product features no longer align to the core needs of the client, and in some cases, deliver benefits that exceed the financial loss experienced. As such, the replacement ratio is no longer 75 per cent, and in short timeframes can approach close to 130 percent.
It is now time to deliver a solution that has been designed with the adviser and client in mind, rather than the research scores. With the support of an adviser force, working in the best interest of the client by assessing client circumstances, long-term and short-term pricing, claims and underwriting relationships, and research, we can collaborate and engage more Australians with meaningful and, importantly, affordable solutions.
[1] Income Protections – A Time for Review
[2] Lewers Pulse survey conducted for Zurich, October 2015
