[GRTV] We have to prove we are not the bad guys: Ballantyne

Partners Life managing director Naomi Ballantyne says the various regulatory reviews are putting huge pressure on life insurance companies and distracting them from their core business of paying claims.

Friday, May 24th 2019, 9:03AM

Joining me now is Naomi Ballantyne, the managing director of Partners Life. Welcome, Naomi. It's nice to have you back in the studio again.

Thank you.

We had Adrian Orr in here this morning, and he said one of the bigger issues with life insurance is the asymmetrical information between the customer and the advisor and the company. How do we fix that?

I agree absolutely that that is an issue. It's a fundamental issue that New Zealanders are financially illiterate in respect of things like insurance. So we have an advisory force, which exists effectively to try and provide some education to lift the knowledge in order to be able to give advice. But that, by default, will always mean there's this asymmetrical side of things. And one of the things I had suggested to, in fact, ministers in the previous government before is a thing that the government can do which won't cost them anything and sits outside of the typical, "Why don't you give tax breaks for people to buy insurance?" and things like that, is actually make it mandatory for employers to provide education to their employees about what insurance products are designed to do and the education piece that advisors currently do. And in a similar way, when KiwiSaver started, employers were required to provide access and knowledge for that piece of it.

I was going to say, could that be delivered through KiwiSaver?

I'm not sure about the delivery mechanism. I guess the concept, though, is that the government should be talking to people and raising their financial literacy in as many ways as they possibly can. And one way of doing it, given that people who are working have an income to protect and an income to lose if it gets interrupted by health events. It's a good place to start. So education in the workforce or an employer required to provide education to their employees, financial education, and then access points to advice might be a really good starting point.

So the question he's asking is something which could actually be fixed by the government, is essentially what you're saying.

Well, at least facilitated by the government, absolutely. In my view.

It would be interesting to see if they take that sort of idea up, and maybe the minister will get told that again and can engage.

I haven't talked to this minister about that idea, but it's something that I fundamentally - for exactly the same reasons that you're asking, how do we get this across people where we're not relying on advisors to do that education. Because advisors, it costs them to do that, to get a client to a point where they can at least have a conversation and start to talk about that product. And that accusation or that bogey in the room that sits on the table says, "But you might not be telling the client everything they need to know," which is hard. It would be really hard criticism to sit and take when you're trying to do the best that you can. And that question is still, "How do we know that you haven't done something wrong because of that imbalance?"

And so all this work we're getting from people at the Reserve Bank and the FMA, how do you think that's affecting the industry and businesses like yourself?

Hugely costly. So ourselves have become fairly sufficient than we were before because we're rearing all this additional cost of doing this work to effectively prove that we're not the bad guys, or to prove that we're not Australia, or to prove the things that we do, that they are delivering good outcomes for the customer all at once in a very short timeframe, and to an audience that doesn't really understand what good should look like. So you're having to, not only figure it out in terms of what is it that they want to see, and then how is it that we can find that data to deliver to them in a way that they might accept as being reasonable. At the same time as we've got NB consultations coming through and dealing with the very public, for a period of time, criticism of the industry. And running a successful business. It's-

It's become much harder to basically run a life insurance company.

A lot of people are not focused on running a life insurance company. They're focused on standing still to do this piece of work, and I'm not sure that that's a good thing for the industry.

So do you think we'll get through this quite quickly, or is it going to be something which is going to last a long time?

This initial piece of work - assuming we get through it - and when I say assuming that, because we don't know if we have. We're doing our best to come up with what we think it is that someone might think is through it, and have done the work and recognized, for example, if there are areas that we need to strengthen as insurers, that we've got a program of work to do it that we can wear and run the business. But the issue, though, is we will have, I believe, a period of time where we won't know whether what we've done satisfies anyone. Because I guess we don't know what the regulation will get from all the companies. If you're a betting person, they might pick things out of each one that they like and go, "Why didn't you do this whole picture?" And they'll go ahead and do it again on the basis that that company did this and that company said that. And a combined total is what we really wanted to see.

So out of the 16 responses they get, they might pick and choose pieces and then come back with something quite different.

And it's not anything they've indicated that they will do, but that's kind of the fear, that we will do all this work, off the back of already having done a whole lot of work, and the initial investigation, and then we will have to do it all again in a different way again, and we've got no certainty about when we'll know that and how long it will take to do that. And in the meantime, we'll start implementing some things that we've committed to implement and not know whether, in the end, that will be criticized or accepted as. So it's a very uncertain time and a huge amount of time and effort and money being spent. And staff's time and doing things that are not running life insurance and paying claims for the customers, which is what we do. Yeah.

You would have been pleased that the minister, Kris Faafoi, has come out and said that he doesn't want to ban commissions. But he's also said that he quite likes the idea of trial commissions as a way of ensuring that the customers are looked after for the lifetime of the product.

Yeah. And it's an interesting thing because it's a criticism of trial commissions, as well, in that you're paying money for nothing for some advisors. So it's similar to Australia, where Hayne says, "Ban all commissions." But actually in mortgages, it's a different thing. Up-front commissions are better than trial commissions, for example. And that's the problem. There is no right answer. So there's unintended consequences of changing anything. And I really like the conduct paper saying, "Here's the conducts we're trying to address." There's some leaps that they take that say, "This commission or structure drives that conduct." And when you unpack it, you realize that any commission or interaction will drive the same thing. So the leap between, "This is what's causing that," I don't think has been tested appropriately. But the conduct that issues the conflicts for the clients absolutely are the things that need to be addressed.

But any change of remuneration structure has unintended consequences, which may be worse. So take the time to think this through. So leaping to recommending or even suggesting solutions, I'm not sure is helpful because people become wedded on what they think without actually being able to explore that, "Here's the consequence that might come from that. Are you willing to risk that to make a change?" And in particular, FLAB hasn't come in yet.

But it's good, the fact that he hasn't talked about banning them.

I agree. I agree.

And then the latest paper, and we seem to be getting papers all the time now, even raise this idea of capped commissions, which I suspect wouldn't go down very well in the industry.

So just to back up the truck a bit, we're not wedded to any commission structure. We didn't invent the current commission structure. We work within the parameters. So we look at all of these options, not from a, "We don't want to do that," but from a, "What will be the consequence, A: to customers access to advisors. So can advisors survive this? B: will it change the behavior that is being criticized? Because if it won't, what's the point of doing that, for example? And what's the cost to us of these suggestions? And capped commissions, capped up front, which pushes the long - it's actually less profitable for us over time. Maybe no one cares about that, but the only way we restore profitability is to charge the client for it. So maybe they will care about that, for example. And if you cap, but still have up-front commissions, all the behaviors, all of the conflicts still exist. And if you drive up renewal commissions, then I guess you can create an opportunity for advisors to see finding clients that are currently paying on your commissions to another advisor and having move them to me is as lucrative as selling new business to customers. And I'm not sure that that's a consequence that anyone wants.

So there's still a huge amount of debate and discussion and investigation going on in this area.

I think so.

And that's fine. But you've got your TV campaign back up and running again. Can you give me a bit of an insight into how that's going and what sort of responses your getting and whether it's actually working?

We're really, really happy with the response. And in particular, with the response since we relaunched it after Christchurch. because you don't know if it's too soon, you've got the timing right, what's going to happen. And in fact, it's been exactly as it was before the Christchurch. It was overwhelmingly positive feedback from people telling us how much they love the ads and the message of the ads. So that's great. We've had a number of complaints. We had an ASA complaint, which they upheld none of the complaint.

So we've done that one already.

Yep, so that's off the table. We respond to every complain. There are a number, but they are dwarfed by the number of people that give us positive response. And we have had in the hundreds of leads from people who have seen the ad, gone through the website, and asked to get advice, which we weren't expecting. So it's working. It's definitely working.

And those leads get fed out to advisors?

Yes, they do. Yeah. So our website goes right to the end. "You think you need insurance? We're not going to tell you what to get. You should go and see an advisor."

So it's working? It's worth doing?

It's working. Yeah, absolutely.

Awesome. That's great to hear. Thank you very much for your time, and it's lovely to have you in the studio again.

Thanks, Phil.

Watch the interview here.

Tags: GRTV Naomi Ballantyne Partners Life