Why best products aren’t always best

Logan will be presenting at next month's IFA conference, where he will look at how advisers can use risk research to help them in their business.

The main focus of the presentation would be to look at how research is being used in regulated markets as opposed to how it has been used historically.

And he said one of the big themes would be around how advisers need to change from a one-size-fits-all attitude towards product recommendations to a more "client-centric" one.

"Advisers have been using research as a static tool," he said. "They would say, for instance, ‘Asteron has the best trauma product therefore I'm only going to sell Asteron."

Instead, advisers need to "ask qualitative questions of clients in terms of their requirements; the research flows into that to recommend the right product," he said.

"Research is designed to assist advisers not to make the recommendations for them. Often we find advisers are wanting us to make the decision for them."

Logan said that unlike investment products, where "a dollar is a dollar is a dollar", there is "really no such thing" as the best product in the risk space, due to the fact each client will have different needs.

He used the example of a triathlete: "From an insurance perspective they might not be worried about cardio-vascular but could be worried about skin cancer."

"In some of the markets overseas the regulators are not looking at whether something was the right or best product but asking ‘did the product on offer take into account the client's objectives?"

Comments from our readers

On 25 June 2012 at 12:23 pm Giles Thorman said:

This could be seen as a case of someone trying to abdicate any responsibility for anything they say or do. If an adviser has used a research house as PART of his/her recommendation process , it now seems (possibly) that research houses are doubting whether they should or could be held to account for their input.
I am not sure I follow Andrew Logan's example, whilst his triathlete example client may be very concerned about skin cancer and 'unconcerned' about cardiovascular disease; as his adviser I know he is more likely to claim for the potential heart problem than potential skin cancer; therefore he needs a good robust policy that covers both scenarios; the first to take into account the clients objectives and the second to take into account all of my concerns as his professional adviser. Is this a case of Andrew saying to all clients of research houses, Caveat Emptor, or is he merely saying do not use a research analysis as the be all and end all? Hopefully the latter.

On 25 June 2012 at 7:54 pm Andrew Logan said:

Giles, as a company with an internationally recognised quality rating for our research methodology, we absolutely stand by our research. The point being made is that research is objective and whilst we can accurately rate individual policy benefit wordings and features, it is up to the adviser to overlay that research with the required subjectivity for each client engagement and to identify which benefits and features are most important to the client.

I agree that the example above is a little misleading in isolation but that's the risk with short articles. If for example this client traveled extensively for their sport, features such as true global coverage on income protection could be more important to him than other benefits (whilst most policies claim this feature, closer scrutiny of policy wording highlights some major differences)... Again this is a single example of the types of individual client requirements which may drive product selection in a truly client centric advice process.

On 26 June 2012 at 12:08 am Mike Naylor said:

Insurance advisers need to be aware that following the Hamilton court case, legal precedence now clearly demands that advisers personally confirm that the product choosen for a client is the best possible product for that client.

It is not legally a defense to rely on an outside rating body by itself. It is also not legally a defense to only recommend the best of the products you are authorised to sell - you have to be aware of the qualities of all products in the market.
The superiority of the client-centric approach is, of course, old news and should have been what best-practice advisers have been doing for a decade.

On 26 June 2012 at 10:11 am Dirty Harry said:

Both Thorman and Logan have made valid points - to the extent that, in fact both sing from similar song sheets. Research is only a part of the picture, and in the finco fallout any reliance on research as a back-stop defence device is pretty much gone.

To my main points: Yet again a former "Fancy and ethnic food importer" turned academic has chimed in on here with a trite comment about what 'those advisers should have been doing....'
A lecture on insurance legal precedents from one who has never actually BEEN an insurance adviser, let alone a lawyer? Oh puh-lease.

Point one: The 'Hamilton court case' was about an investment adviser making unfortunate investment decisions by following a flawed advice process. I understand the Hamilton decision was more about allocation to fincos in general, and not about which particular one. Nothing to do with the use of research to compare specific fincos. Yes, there may be some crossover from this case to insurance advice (recommending types of cover perhaps), but drilling down into every single wording in search of ‘client centric’ features, is insane. It is not where the FMA sets its sights as 99% of advisers do not hold agencies with every single insurer, and never will.

Point 2: This "client-centric" theory about products chosen for the client apply more to the legions of QFE advisers who operate a one-size-fits all model, so spare the rest of us with multiple agencies to choose from such off-topic academic diatribe.

On 11 July 2012 at 5:53 pm You must be joking said:

I am a simple person hence my questions. If I recommend a product as being the best for my prospect/client now does it mean I will/should have to churn it if a better product comes along? Isn't the FMA looking for consistency of process or does this consistency not cover product selection?
Who says it is a better product ? Risk Researcher/ Strategy? If the research rater has got it wrong and the adviser is sued , fined who has the responsibility for the payment of the fine/ court awarded costs etc.
Choosing your risk product supplier based on product is surely not the way to build a long term high value business.Poicy wordings are changing at least monthly. To those who choose to place there clients families future based on product ratings from a third party who has no liability for his ratings ,good on you.
The people who are building a business with a long future and a high value thank you . These businessmen one day will own your business and will pay very little for it if they buy it at all as the best price may very well be the insurers BOLR. What is your Value Proposition?
Base it on a moving target like product wordings? Is that real value for your clients or the prospective purchaser. if you believe that best product now is the way to a great future you must be joking.

On 13 July 2012 at 2:14 pm Jonathan said:

You should do what's best for your client! Your opening question is a loaded one because you throw the word "churn" into it, but if in the course of reviewing a clients position, it is deemed that there is a better solution (product is only one aspect of it) then of course you should recommend that for your client.
The FMA is looking for a "consistent" PROCESS it isn't saying that once you have recommended a policy you need to focus on keeping it in force forever and a day regardless of changes in a clients circumstances or new product development! I agree with you that product is only one part of the overall solution.. but isn't that what Logan is saying? I've been a broker for 28 years and I can tell you honestly that I don't know every word of every product in the market (and yes they do change frequently.. as they should) so when I see a client who has an existing policy the only options I have are to read the policy document from front to back or to use a research tool to see how that product fits into my recommendations and work out the benefits/ risks of keeping, replacing, increasing or decreasing it are for my clients situation. The days of replacement of advice forms simply saying "cheaper premium, better benefits" are over!

The FMA is clear that it wants to see the benefits and risks of your advice clearly stated. If you can do that in a timely fashion, without a research tool, you are far smarter than me.

I'm intrigued though... When you review your clients each year, if you know that there is a better solution for them, but to protect your "persistency" and opinion that product wordings aren't that important in a legally binding contract such as insurance, you recommend they almost always keep their existing policy....are you not in fact breaching your duty to your client to inform them of the risks of remaining on that product? You seem more concerned with growing the value of your book than focusing on your clients needs, but then again you might have just been joking..

On 13 July 2012 at 2:46 pm Jonathan said:

You should do what's best for your client! Your opening question is a loaded one because you throw the word "churn" into it, but if in the course of reviewing a client's position, it is deemed that there is a better solution (product is only one aspect of it) then of course you should recommend that for your client.
The FMA is looking for a "consistent" PROCESS it isn't saying that once you have recommended a policy you need to focus on keeping it in force forever and a day regardless of changes in a clients circumstances or new product development!
I agree with you that product is only one part of the overall solution.. but isn't that what Logan is saying?
I've been a broker for 28 years and I can tell you honestly that I don't know every word of every product in the market (and yes they do change frequently.. as they should) so when I see a client who has an existing policy the only options I have are to read the policy document from front to back or to use a research tool to see how that product fits into my recommendations and work out the benefits/ risks of keeping, replacing, increasing or decreasing it are for my client's situation.
The days of replacement of advice forms simply saying "cheaper premium, better benefits" are over! The FMA is clear that it wants to see the benefits and risks of your advice clearly stated. If you can do that in a timely fashion, without a research tool, you are far smarter than me.

I'm intrigued though... When you review your clients each year, if you know that there is a better solution for them, but to protect your "persistency" and opinion that product wordings aren't that important in a legally binding contract such as insurance, you recommend they almost always keep their existing policy....are you not in fact breaching your duty to your client to inform them of the risks of remaining on that product?
You seem more concerned with growing the value of your book than focusing on your clients' needs, but then again you might have just been joking..

On 16 July 2012 at 9:25 pm You must be joking said:

Consistent process. So every year a better product comes along you will "move "it to maintain "consistent " process? I agree that product wordings are amongst the reasons for choosing your product supplier.

Sadly we have let the companies and the research houses lead us down to one of the lowest common denominators, policy wordings, which because of the new , very good offer of enhancing old policy wordings have very little relevance to your clients claims which are more likely to occur in 5, 10 or 15 years time. Compliance gives us the opportunity to show we are better than one trick ponies.
Advisers ask your self how often is now policy wordings {or worse now price or the next trip } the incentive to place this case with this insurer. Many of you do not do this. I look at the names of some of the highly qualified ethical successful contributors to this forum and agree that it is not you that I am concerned about. It is the wider group of advisers who know it is them that my frustrations are aimed at.
This industry has given me and my family a life of plenty. I see it being undermined by those who use the short sited views of the not guaranteed wordings or price and the trip as the reason for replacement of existing business.. These people will respond to these views on this forum. You must be joking.

On 19 July 2012 at 6:20 pm Tony said:

I attended the IFA conference in Auckland and attended the session run by Logan on Risk Research. What he had to say was spot on and very refreshing to hear someone with obvious knowledge and experience in this area discuss an advice process that focuses solely on whats best for the client and what tools are available to help us risk advisers achieve this. They say you can't teach an old dog new tricks, but I'll certainly be exploring a few of his ideas.

Why best products aren’t always best

Advisers shouldn't rely on research houses to make their decisions for them, according to Andrew Logan, the New Zealand manager of Iress.

Sunday, June 24th 2012, 9:06PM 9 Comments

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