Partners Life: This is what good advisers do
Partners Life managing director Naomi Ballantyne has fired back in the debate about commission, highlighting the amount of work that advisers do for nothing.
Monday, May 13th 2019, 6:00AM 
9 Comments
She is circulating a document outlining the advice process, and what is earnt at each stage, to media, Commerce Minister Kris Faafoi’s office, the Financial Markets Authority, Reserve Bank and the Ministry of Business, Innovation and Employment.
“We believe it is essential for these audiences to truly understand the nature of a long-term life insurance contract, and the changes that are required along the way to ensure the client’s cover evolves appropriately as their circumstances change over their lifetime.
“They also need to understand the likelihood that this evolution of cover can and will occur, if there isn’t an adviser ensuring that it happens.”
Ballantyne said the document identified all the work that should be happening in respect of advisers' clients over time. That could potentially be problematic for those advisers who did not proactively service their clients.
“This, of course, is the very behaviour that has led to the negative perceptions around renewal commission in the first place.
The document says Partners Life can only offer its clients complex, flexible products because each client has their own adviser.
“For a client to understand what changes in their lives could and should prompt a review of their existing coverages, would require a great deal of insight on their part about a subject they are unlikely to have a close interest in or knowledge of. Even if a client had an awareness that their coverages require reviewing as their lives change, it is very unlikely that they would understand on their own, what changes could or should be made to their inforce benefits. Without an expert adviser working with a client over the lifetime of their policy, it would be probable that the coverage bought at application date, would be inadequate or incorrect for their circumstances after a relatively short number of years.”
THE OUTLINE
Process Step
Approaching consumers to educate about what advice is and why that could be of value to them. The intention is to have the consumer agree to a first appointment.
Possible Work
Referrals from existing clients/referral sources • Trade shows • Local Events • Community Groups • Business Partnerships • Door-knocking • Social Media advertising • Above the line advertising • Purchasing leads from lead generation companies/call centres • Buying client bases
Background information
This is one of the most difficult, time consuming and expensive tasks an adviser must undertake. Generally there is a significant amount of rejection that an adviser must accept during this process.
Commission earnt: None
Process Step
First appointment – to get to know the client, understand their current lifestyle, help them consider their future life aspirations and identify the risks to their current and future lifestyles.
Possible Work
Disclosure • Scope of advice • Fact-find
Background Information
The generally accepted average conversion rate of lead to first appointment is approximately 20%. The average conversion rate of first appointment to policy issue is only 50%.
Commission impact: None
Process Step
Subsequent appointment (s)
Possible Work
• Needs analysis calculation • Recommended product types and levels of cover determined • Provider comparison for recommended covers • Individual analysis of any existing covers and their ongoing suitability • Provisional quotes • Recommended plan • Options for affordability • Final agreed plan
Background Information
This appointment is where the adviser is educating the client about the financial impact of health unexpectedly interrupting their current life plans, about how life insurance works, what the use of each product type is, how to understand the differences between product provider offerings, how ownership structures work in respect of where the proceeds are intended to go, and how much the client can expect to pay for this coverage. Effectively the adviser must increase the financial literacy of the client to enable them to make informed decisions and they must prove they have done so, just in case the client is disappointed with the decisions they have made at some point in the future.
Commission impact: None
Process Step
Subsequent appointments
Possible Work
Assist client to complete application form(s) [there may be more than one provider involved in the recommended solution] – and educating the client about disclosure risks during the application completion process • Discuss any potential underwriting implications that become apparent during application completion e.g. likelihood of additional medical information being required, potential loadings or exclusions that might be applicable • Gather application requirements e.g. ID, bank account details, financial evidence etc.
Background information
The adviser becomes privy to some very personal and detailed information about the client. They must establish with the client trust that they will respect their privacy. They must also make sure the client understands the need to make full and complete disclosures. They must be able to prove they have done so, just in case a client does not disclose fully and implicates the adviser in the non-disclosure.
Commission impact: None
Process Step
Submit application(s) and progress through underwriting
Possible Work
Transmit applicable quote, application and accompanying requirements to Insurer(s) • Respond to new business and/or underwriting queries and requests which may involve gathering additional information/requirements from client or organising for client to undergo medical screening • Keep client informed of the progress of their application and ensure they are aware of the need to disclose any changes to their health or financial circumstances in the interim
Background information
The average rate of applications that never proceed to policy issue is 20%. Reasons for this can be buyer’s remorse, outstanding requirements not being received by the insurer, clients not completing required medical screening, clients not accepting special acceptance terms, terms offered not being as good as the existing terms on the benefits to be replaced, client being found to be uninsurable etc. The longer the application remains in the process before being issued, the higher the likelihood that they will never become an issued policy
Commission impact: None
Process Step
Underwriting result- special terms
Possible Work
Where special acceptance terms have been offered by the underwriter: • Consider the terms offered and the impact on the client’s risk outcome • If any existing benefits are being replaced consider whether the offered terms change the recommendation to replace • Consider whether better terms could be achieved with another provider, and whether that would represent a better overall outcome for the client taking into account product value and pricing • If so, repeat the application process with another provider • Otherwise, discuss the offered special terms with client and explain the impact on their cover • Where affordability or cover restriction requires it, amend cover types and levels in conjunction with the client to deliver the best coverage for the premiums being paid • Once the client confirms that they understand and are comfortable proceeding with terms (and any consequential amendments to their covers), then proceed to policy issue
Background information
This is a very difficult job, effectively convincing a client that their risks are not standard, and that they therefore cannot have access to the same cover/price offering that other clients can, but that given their health is already compromised, that if they don’t proceed with the cover that they can obtain now, they may not have the option to purchase that cover on as favourable terms (if at all) in the future. They must be able to prove they have done so, just in case a client becomes disaffected at claims time with the restrictions applied at underwriting and wish to blame the adviser
Commission impact
None
Process Step
Issue policy
Possible Work
Contact client to ensure all the details of the policy are correct and that the client has no questions or concerns about their cover.
Background information
Up to 5% of all policies issued are cancelled within the contractual free look provisions contained within the terms and conditions. 100% of upfront commissions are clawed back for free look cancellations.
Commission impact: Upfront new business commission paid (subject to 100% claw-back for cancellations within 6 months and then pro-rata claw-backs between 6 and 24 months)
Process Step
Annual review
Possible Work
On each anniversary of the commencement date nearly all policies undergo a contractual change in the nature of premium reviews, inflation adjustments to benefits, and/or benefit expiries, as examples. • For indexed benefits, sums insured will increase in line with the Consumer Price Index, and the premiums for those benefits will also increase accordingly. In addition YRT premiums will adjust for age at each anniversary, and any underlying premium rates increases that the insurer has applied to its book since the previous policy anniversary, will also be applied. If benefits have also expired since the previous anniversary, the premiums for these benefits will cease. • A new premium is then calculated based on all of these parameters and an anniversary communication will be sent to the client outlining all of these changes. • Advisers are acutely aware of the potential for clients to react negatively to anniversary communications which notify them of a premium increase. To avoid clients making ill-judged cancellation decisions, many advisers contact the client at anniversary date, to explain these contractual changes and to reiterate the value of the covers that the client has in place – essentially to remind the client of what their policy benefits are designed to achieve for them in the event of an unexpected health catastrophe. • If required due to affordability issues, the adviser may need to help the client with adjusting inforce covers to meet their new financial circumstances. • At the same time, the adviser will also review the client’s policy to ensure it still meets their needs taking into account any life changes that have occurred since the benefits were last reviewed. This can involve anything from minor cover amendments to a full repeat of the advice process, effectively moving back to step 3. • If the client has experienced any of the special events which trigger non-underwritten increase opportunities within their existing benefits, the adviser must also help the client understand the opportunity this might present, particularly for clients who have become health compromised, but also to determine whether such an increase in cover is warranted based on the client’s full circumstances.
Background Information
• Anniversary communication advising the client of changes to their benefits and premiums can be a catalyst to the client considering cancellation of their benefits due to increasing premiums. • The work required of an adviser to complete an annual review with a client can be as extensive as the work required to provide initial advice. Unless the advice provided is to replace the existing policy, the adviser will only receive upfront commissions on any noncontractually increased premiums. • The renewal commission asset, the future opportunity for increase commissions over the life-time of the policy, and the referral opportunities from a satisfied client, provide the value drivers for the adviser in doing this review wor
Commission impact: Contractual premium increases generally do not result in any upfront new business commissions for advisers, irrespective of whether the total premium payable has increased or not. Likewise contractual premium reductions (for example if a benefit expiry means the total premium reduces on anniversary) do not result in upfront commission claw-backs. However the ongoing renewal commission received by the adviser will be impacted by any changes to the total premium payable from the anniversary date onwards. Should a client reduce their existing benefits as a result of their circumstances changing, the adviser might be subject to claw-back of any upfront commissions still in the claw-back period. Should a client add or increase benefits (in addition to contractual increases) as a result of the review, then new upfront commission may be payable on the increased portion of the premium relating to those noncontractual alterations.
Process Step
Policy maintenance
Possible Work
Beyond annual reviews, during the life of a policy there can be multiple occasions where advisers are required to provide further “maintenance” assistance to their clients which have no impact on the amount of premium payable by the client. From time to time some clients miss paying premiums when they are due. This can be because of changing bank account details which have not been communicated to the adviser or Partners Life, because of affordability issues, or because a client has made a conscious decision not to pay their premiums.
Background Information
• Change of payment method, frequency, premium deduction date, bank account or credit card details, payer etc. • Change of contact details e.g. address, email, phone numbers • Lost policy documents • Change of Ownership
Commission impact: None
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Comments from our readers
Unfortunately fees v commissions are a soft target for those salaried observers who have little / no idea of what is required to remain educated, prospect clients, complete fact finders, etc etc etc
The other service most insurance advisers offer is claims support/management/advocacy. Not all clients take advantage of this but when they do the work advisers do can range from a few hours to several months and some would argue is the most important, when it comes to Income Protection, trauma and disability products. This work also has no commission impact and is generally provided at no direct cost to the client.
I guess we'll have to see whether a regulator will take notice of this. They don't seem have any sales background or know what is involved in this type of work. As a result my guess is that they are going to refuse to accept that the costs of clients not going ahead with policies and those cancelling should be passed onto the ones that do take the policy.
Nonetheless, well done Naomi - it's a shame the other companies haven't come to our defence.
As an aside - how many of the providers have decreased their premiums since formally announcing trips and other soft dollar incentives are to stop? The answer, the same amount that would decrease clients premiums if commissions were to be lowered - 0.
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And advisers certainly need L5 to accommodate this knowledge and use it professionally in their markets