By posting this, I’m going to raise a contentious topic. One that clients often do not understand, advisers generally avoid discussing, providers publicly discourage but operationally encourage and the Financial Markets Authority (FMA) is starting to have a closer look at.

I have stated the previous parties in a very specific order, from most impacted to the one with the stick they can use, and the players in between.

How does this all come together?

For most clients, expecting you to understand the finer points of your policy benefits and being able to compare them with another policy or the market is unreasonable. This is why you have an adviser, so they explain them to you, both good and bad.

The challenge is the adviser is primarily remunerated based on new policies put in place, not giving advice on old policies. So there is some conflict in advising you to keep your existing cover.

This is supposed to be mitigated by the Financial Adviser Act that states financial advisers must put their clients first.

Insurance companies publicly say ’hey don’t move policies without a good reason’, but on the other hand they’re, don’t worry we’re better than the rest bring everything to us, oh but don’t take any away…

The FMA overseas all of this, in a general way expecting the individual insurance companies, adviser businesses and advisers to do the right thing.

The Problem

The problem is when money is involved the right thing is not always done, and with insurance this is not often realised until some years down the track.

The Advice

One of the things you as a client rely on from your adviser is not only the good reasons for moving and changing your insurance cover, but also the reasons you should not move and change your cover.

Understanding that situations change and requirements change, but it does not always mean you have to change providers or even change policies. Some things can be done within the constraints of your current cover.

However, we do find that other providers and other benefits with both current and new providers are often beneficial for clients when looking at existing older covers, but not always. Probably just as often we can effect the changes required within the existing covers and we do.

The FMA’s view is the consumer should take advantage of competition as and when they can. In practical terms this means clients should move their cover where it is an improvement when they can, until they cannot.

The Downside Risk

The downside risk to this is your health and disclosure.

Effectively review and move until you develop health conditions that prevent you moving. This should ensure you get the best cover possible at the best premium rate possible, while your health is standard.

The problem lies with the health disclosure along the way, if you or your adviser glosses over this, that move may result in you not being covered at all, due to the policy being cancelled for non-disclosure or exclusions being applied.

This is where it all gets a bit murky. I have always talked about the downside risk when we have advised and replaced benefits for clients, over the last few years our documentation around this has also improved, though there has always been something on the subject.

The 'No Advice' Risk

The challenge that has now been presented to you, the consumer, with the changes to the law, is the very real possibility that in taking new insurance cover, that replaces old insurance cover, you could do this feeling like you have had advice, but technically under the law, in a clever way, you haven’t had any advice and it’s just a financial transaction that you are wholly responsible for.

Yes, that was one sentence, and one to make a point on purpose. Many interactive moving parts make up your successful insurance claim. Simple is not something that applies to insurance, a bit like life really, it is never simple.

How does this advice but no advice work?

In asking an adviser for insurance cover, and them asking the questions like:

• How much life and trauma cover do you need? Rather than what is your debt, what is your income, etc, I think you need X cover.
• Followed on with, ‘Here’s the range of providers, policies and their premiums I can arrange, pick one.’
• Oh, you have existing cover, well it is your choice to take the new cover but I am not comparing this new cover with your old cover.
• Ok you want to proceed, let us get the paperwork filled in.

All of a sudden, you have moved your cover with no advice, no risk assessment and no product comparison and none to little liability for the adviser with the transaction.

The disturbing thing is your bank is likely to take the same approach when advising you on your cover, more challenging as they typically have no knowledge or research of any products outside of their own. So the decision to make changes or take cover is very much buyer beware. 

You expect to be advised

Clients talking to an adviser expect to be advised, they are wary of being sold to, but are not expecting to not be advised in some way. Under our current rules, it is possible to feel advised but not actually be advised.

On the sales bit, because everyone is wary of this. If you are being sold to then you may not be being advised, but there are many good advisers who are also good sales people. I am not saying salesmanship is not involved; this is life insurance after all. No one gets out of bed and says ‘I’m buying life insurance today’, lets be real. You do need to be moved along at times.

A good adviser will give you good options and understanding, they will know when to prod you along (sales) and when you let you stew in your own juices too.

Personally, I like to sleep at night, I am an adviser and I add value to managing risk for people, so I expect to be advising you of your risks and not playing clever games. I do keep my clients interests front of mind, as do many advisers, unfortunately, this cannot be said for everyone in the industry.

What we do

My primary driver as an adviser is to arrange suitable cover that works at claim time. I look at every situation based on the claim payment required for you, the client, then work back from there. Not hey you look like a million bucks lets do some life cover and see how it goes.

For example sitting down with a couple some time ago we reviewed their situation, there had been some changes in their income and a review of their cover was needed.

We worked through the cover options and it was decided to submit an application to another provider because of product quality and premiums. Subsequently we got the answers back some of them were not as good as we would have liked.

Given the existing provider had reasonable products, but not quite as good or as sharp on premium as where we put the new application, we went back and reviewed the cover terms with them. We expected that the answers would not be standard for what was needed, and they were not. From there we were able to make a determination on their cover in an informed way that got them covered as they wanted with the best cover and premium available to them.

What resulted was a mix of the new provider and the old provider as the answer for some of the cover being added with the old provider was harsher than the answer from the new provider. However, other existing parts were still better with the existing provider.

Fast-forward to now, this client has had an approach from a provider where they focus on sales and not so much the advice. Fortunately, the clients came back to me for a second opinion on what had been offered. Interestingly they had been told you will have the same cover, but the new adviser did not provide a clear comparison of the cover.

As it had been 12 months since I last saw the clients, I too reviewed their situation again. There had been some improvement in health but they had also had some other changes too. The reality, both the covers they have are still the best answer for them today. Yes I could come up with reasons to juggle things but the reality when you look at what claims need paying where, what they have will do the job intended better than any other options for a better premium than they can get elsewhere too.

I sat down with them and talked through each benefit. Life cover being life cover in this case there wasn’t a lot of difference except the existing cover was cheaper because of the work we did prior at the original application.

What was interesting in doing this comparison for them on the other benefits proposed, in some common claim situations the new cover proposed wouldn’t pay, when the cover we arranged would provide significant financial support.

The sales bit to get around this was ‘Don’t worry about that, the provider pays their claims’, that is not the point. All providers pay valid claims. If your policy doesn’t provide for a claim, your insurance provider won’t be paying a claim, no matter how many times the sales person says they pay claims.

The point is you need to have the right cover in place to get the right claim paid.

This needs to be arranged with an adviser who understands your needs and is able to put aside the industry pressures and focus on you and your needs.

We like to think we do that for you at Willowgrove. Good, bad or indifferent, giving you the right answer, for you to make the right decision for you, is how we set you on the right path with your risk management.