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Direct Versus Advised
Comparing Effectively with Online Product Offers
10 February 2015
Russell Hutchinson
www.chatswood...
2 www.chatswood.co.nz
Learning Objectives
• Familiarity with differences in:
o Application process
o Underwriting
o Pricin...
3 www.chatswood.co.nz
Which “Direct” Offers Are We
Talking About?
Please message any direct insurers you would like to lis...
4 www.chatswood.co.nz
Direct Insurers
Banks:
• ANZ, BNZ, Co-op Bank, Westpac and similar
Direct sellers:
• CIGNA, Pinnacle...
5 www.chatswood.co.nz
Media Focus: Price, Price, Price …
The focus on comparison in the media is overwhelmingly on price- ...
6 www.chatswood.co.nz
Sample Price Comparison
From ISI/FSC stats at Q3 2011, author interviews, and estimates, plus consul...
7 www.chatswood.co.nz
Media Focus: Claims
Stock correctly identifies some general issues with insurance underwriting:
• In...
8 www.chatswood.co.nz
The Coming of the Angry Policyholder
• There is evidence that customers are more sophisticated than ...
9 www.chatswood.co.nz
Direct Versus Advised – Life
This is a life cover case is based on a female age 35 non-smoker.
What ...
10 www.chatswood.co.nz
Countdown Insurance
Countdown is the latest company to enter
the insurance market, offering a range...
11 www.chatswood.co.nz
Sample Countdown Rate Comparison
Cover Amount Standard Premium Healthy Lifestyle
Premium
Sovereign
...
12 www.chatswood.co.nz
Exclusion Limitations
“We will not pay any benefit under the Serious Illness Benefit if the claimed...
13 www.chatswood.co.nz
Direct Versus Advised – Trauma
In the case of trauma the differences are more significant. The lowe...
14 www.chatswood.co.nz
Summary
• Short-form underwriting is convenient but comes with risks. Those
risks can be amplified ...
15 www.chatswood.co.nz
Questions
1. Name three direct insurers
2. What is the typical price difference between a well-pric...
16 www.chatswood.co.nz16
Thank You!
That concludes the meeting content. Additional
slides are included for your informatio...
17 www.chatswood.co.nz
We are the only management consultancy specialising is in the marketing
and sales challenges of dis...
18 www.chatswood.co.nz
Accuro Marsh
Allied Kiwi Limited Mercury Energy
American International Assurance Milford Funds Limi...
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Direct Versus Advised

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Russell Hutchinson discusses the important issues for financial advisers when comparing direct to consumer products with more complex advised insurance products including product, price, process and underwriting issues.

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Direct Versus Advised

  1. 1. 1 Direct Versus Advised Comparing Effectively with Online Product Offers 10 February 2015 Russell Hutchinson www.chatswood.co.nz
  2. 2. 2 www.chatswood.co.nz Learning Objectives • Familiarity with differences in: o Application process o Underwriting o Pricing o Product coverage o Sales support – “no advice” and “class advice” versus “full personalised advice” • Ability to combine an understanding of these differences
  3. 3. 3 www.chatswood.co.nz Which “Direct” Offers Are We Talking About? Please message any direct insurers you would like to list and discuss Categories for discussion: • Short-form, over-the-counter, no/low advice, limited plans • Full underwriting process, advised, extensive plans
  4. 4. 4 www.chatswood.co.nz Direct Insurers Banks: • ANZ, BNZ, Co-op Bank, Westpac and similar Direct sellers: • CIGNA, Pinnacle Life, Countdown Insurance
  5. 5. 5 www.chatswood.co.nz Media Focus: Price, Price, Price … The focus on comparison in the media is overwhelmingly on price- not features • 5 December article at Stuff.co.nz • Consumer Magazine – recent reviews were price focused in Life, general and medical, even ignoring financial stability which they once included • This suggests, implicitly that “all insurance is the same”
  6. 6. 6 www.chatswood.co.nz Sample Price Comparison From ISI/FSC stats at Q3 2011, author interviews, and estimates, plus consulting Actuary input. Some direct offers can be more expensive – such as AA life. We don’t show that data here, however, Bank insurers usually at the cheaper end of the advised range These direct insurers are typically 5% to 10% cheaper.
  7. 7. 7 www.chatswood.co.nz Media Focus: Claims Stock correctly identifies some general issues with insurance underwriting: • Insurers often wish to ask fewer questions • Clients are not underwriters • There are situations where the question of disclosure is complex and difficult Rob’s example: he explains that the client: "...answered "No", when she had been to the doctor's on a number of occasions, and she'd not "disclosed" the history of cancer in her family.“ This may not be just about the form, but about the sales process. Problems with a limited or no advice sales process include: no advice on replacement, limited experience of underwriting, little industry knowledge or context, no advice on cover amounts
  8. 8. 8 www.chatswood.co.nz The Coming of the Angry Policyholder • There is evidence that customers are more sophisticated than media • A UK customer advocacy group: “Angry Policyholders”, was established because of the perception that the ‘any occupation’ and ‘activities of daily living’ definitions for TPD and IP was unfair. • They believe this definition should never be used. • Many financial advisers agree. • Obviously when quality differences are explained consumers do understand.
  9. 9. 9 www.chatswood.co.nz Direct Versus Advised – Life This is a life cover case is based on a female age 35 non-smoker. What effect does commission have on the product selected? In this case higher commission products correlate with higher quality of coverage The lowest score for the product in the set we research is 92%, shared by ANZ, BNZ, and AMP-RPP. The highest is 100%, held by Asteron, and most intermediated companies score between 96% and 100%. Most direct to consumer offers score between 92% and 94% with the exception of Westpac.
  10. 10. 10 www.chatswood.co.nz Countdown Insurance Countdown is the latest company to enter the insurance market, offering a range of product underwritten by CIGNA. The range includes: • Bill Protection Insurance • Pet Insurance • Travel Insurance • Life Insurance • Accidental Death This is a consumer-focused offer. Note the prominence in the offer of bill protection insurance, which is judged to have near- universal appeal.
  11. 11. 11 www.chatswood.co.nz Sample Countdown Rate Comparison Cover Amount Standard Premium Healthy Lifestyle Premium Sovereign $100,000 $15.05 $13.17 $16.27 $200,000 $22.84 $19.99 $25.57 $250,000 $26.74 $23.40 $29.84 $300,000 $30.63 $26.80 $33.84 $500,000 $44.10 $38.59 $45.46 $750,000 $60.95 $53.33 $63.48 $1,000,000 $77.79 $68.07 $80.34
  12. 12. 12 www.chatswood.co.nz Exclusion Limitations “We will not pay any benefit under the Serious Illness Benefit if the claimed condition is caused or contributed to, directly or indirectly, by: • attempted suicide, intentional self-injury, whether sane or insane • an unlawful act by you or the Life Insured • alcohol or drugs taken by the Life Insured (unless prescribed and taken as prescribed by a registered medical practitioner) • driving a motor vehicle with a blood alcohol level in excess of the minimum legal limit.”
  13. 13. 13 www.chatswood.co.nz Direct Versus Advised – Trauma In the case of trauma the differences are more significant. The lower score is just 52% of the best. In this case we used only the standard trauma options – choosing not to add extra features such as early cancer and other diagnosis benefits. The lowest score for an intermediated product is 74%, but most sit in a range between 85% and 100%. The highest score by a direct-to-consumer company was Pinnacle Life at 77% with most in the range of 60% to 77%.
  14. 14. 14 www.chatswood.co.nz Summary • Short-form underwriting is convenient but comes with risks. Those risks can be amplified if the person helping with the sale is motivated to coach or advise minimal disclosure • Price can vary a lot – you need to compare – but the better half of direct products will have a 5% to 10% price advantage over the cheaper advised products. Some will be more expensive • Product varies a great deal: o Life cover will be similar but exclusions can be significant o Trauma and Income Cover the differences can be very large and customers do care – remember the “Angry Policyholders” movement in the UK
  15. 15. 15 www.chatswood.co.nz Questions 1. Name three direct insurers 2. What is the typical price difference between a well-priced direct offer and a well-priced advised offer? 3. Give an example of an exclusion limitation 4. What is the product rating gap typical between a direct trauma product and an advised trauma product 5. Name a problem with a limited or no-advice sales process 6. Name a problem with a full underwriting process 7. What is the name of the UK group advocating for better wordings?
  16. 16. 16 www.chatswood.co.nz16 Thank You! That concludes the meeting content. Additional slides are included for your information. Visit us at www.chatswood.co.nz Connect with us on LinkedIn Please remember that this material is © Copyright – please use in your business but do not distribute or re-sell
  17. 17. 17 www.chatswood.co.nz We are the only management consultancy specialising is in the marketing and sales challenges of distributing insurance products in New Zealand. How Chatswood Can Help You. Half our work is made up of syndicated research services covering agency terms, commission rewards, life insurance and medical insurance product pricing. We also conduct a quarterly industry survey. Chatswood Research Services. The balance of our work is bespoke management consulting around specific sales and marketing objectives. Recent projects include: Recent Achievements and Projects. Our terms of engagement are flexible and competitive. We cover the requirement for confidentiality and how we charge, work, and report to you. Review Engagement Information. For details about the Chatswood Team, our clients, and published commentary see following slides
  18. 18. 18 www.chatswood.co.nz Accuro Marsh Allied Kiwi Limited Mercury Energy American International Assurance Milford Funds Limited AMP NZ Association of Credit Unions AON Hewitt NZ Institute of Chartered Accountants ASB Group NZ Mortgage Brokers Association Asteron Life OnePath Limited CIGNA Professional Advisers Association Crombie Lockwood Sovereign Limited Fidelity Life Tarawera Publishing Limited Inform Holdings The National Bank of New Zealand Institute of Financial Advisers TOWER New Zealand Investment Savings and Insurance Ass. Triplejump L.J. Hooker Trustees Executors Limited Contact us for details of who to contact at each client to ask for a reference on the quality of our work Like many brokers, we do business with everyone, and have no dominating relationship

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