By Richard Daubney, 31 January 2019
With the findings of the Financial Markets Authority (FMA) and Reserve Bank (RBNZ) review of the Life Insurance industry having just being released and the predictable media beat up, there is a real danger that Kiwis start perceiving the industry to be all bad. Unfortunately, this may see more New Zealanders not insuring themselves.
New Zealand already has one of the lowest rates of life insurance in the OECD. In 2012 the Financial Services Council (FSC) estimated that only 57% of New Zealanders, that are of insurable age, have their life insured
If this happens it would be a great tragedy given New Zealand already has one of the lowest rates of life insurance in the OECD. In 2012 the Financial Services Council (FSC) estimated that only 57% of New Zealanders, that are of insurable age, have their life insured! This is scary stuff when you consider the potential impact of this on families.
Before starting my own business, I spent most of my career in banking. A few years back I was running some training for frontline staff on selling Life Insurance. During the training one of the branch managers shared one of his experiences. It still sticks in my mind and saddens me every time I think about it.
The branch manager had arrived at work at 8.00am. As he approached his branch, he noticed there was a woman waiting out front with her 3 infant children. The branch manager told the woman that the branch didn’t open until 9.00am. The woman explained that her husband had died the previous evening and she was worried sick about how they were going to cope financially, they had a reasonably big mortgage and she was a stay at home mum. She said to the Branch Manager “I’m sure my husband mentioned something about taking out life insurance with the bank”. The branch manager invited the woman and her children in and sat them down. He logged onto his computer and saw that the bank had in fact offered her husband life insurance, however, the husband had not taken it up.
As the branch manager told this story his voice quivered, and his eyes filled with tears. There wasn’t a person in the room that day who wasn’t moved by this story. I can’t imagine what that moment must have been like for that poor woman.
In the quarter to 30 September 2018, the FSC reported that $166m was paid out in term life claims.
Equally there are many other stories where despite personal tragedy, families haven’t had to suffer financial hardship as well. This is the result of having a robust life insurance industry in New Zealand. In the quarter to 30 September 2018, the FSC reported that $166m was paid out in term life claims. This is the part of the story that is left untold by the media.
Notwithstanding this, clearly, there is need for urgent change within the industry. As I see it, the issues identified by the FMA fall into 5 main areas:
- Sales practices, or how the products are sold to customers
- Commissions paid to agents and third parties
- Product design and complexity
- Administrative practices
- Staff product knowledge – which may be a result of complexity and or lack of training.
This is going to require change of great magnitude for all of the companies involved in the life insurance industry. Completely new corporate strategy particularly around distribution is required and some difficult decisions will need to be made. An obvious starting point for a life insurance company would be a review of their values and beliefs.
For those companies who are proactive, bold and innovative this is an awesome opportunity to rebuild trust and redefine the industry for the better. It will be the organisations who respond in this way that will ultimately prosper.
Richard is the principal consultant at Greater Than. He has extensive experience in developing and delivering training for frontline people who sell financial service products. He also has expertise in developing non-sales based incentive schemes for frontline staff.