[GRTV] Two main challenges see $3 billion annual premium opportunity go begging
The market potential in the business risk space is enormous, says Cecilia Farrow, founder and executive director of Triplejump Group.
Wednesday, January 17th 2024, 6:00AM 
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Farrow who is a consultant specialising in business risk and a former director of Financial Advice NZ says globally the area is not being tapped into.
She says traditionally, if advisers were trained in business risk the main focus was on companies with multiple shareholders. The complexities of putting in place buy and sell agreements and the risks of not getting it right made it too hard for many advisers.
She says since then a lot of work has been done working out the market sectors. By her reckoning there are 50,000 SMEs with multi-ownership structures in New Zealand but the vast majority of businesses are micro - one to five people and in most cases all revenue is being driven by the owner or founder of the company. In NZ this equates to about 450,000 enterprises which have a very different set of problems to larger companies. Farrow says the complexities of giving advice to micro-businesses are a lot lower than for SMEs.
Lack of product
However, when it comes to the products to do this, there’s an enormous need for innovation, and this is the challenge for advisers, she says.
Insurers have tried to take their personal range of products and apply them to a business context, not only in New Zealand but in Australia, the UK and other markets.
Farrow calls it ‘retail rebadging’ and has told the insurers they don’t understand the problems small businesses need solved in terms of risk.
She says she and Partners Life founder Naomi Ballentyne were once chewing that fat on the topic and using a very simple sigma estimated there is a $3 billion annual premium opportunity in New Zealand which is unmet.
“In the UK, when this research was done about 10 years ago, it was about 1.4 trillion pounds.”
There’s no real growth happening in the personal risk space, she says.
Education opportunities
Another challenge is the lack of an educational pathway for business risk. Farrow who was part of the skills committee that previously reviewed NZCFS Level 5 says originally there was one unit standard related to business risk originally in the certificate.
“I can’t train advisers in business risk, even for microbusiness, if I had them in training for two weeks, let alone one unit standard which represents about one hour of learning.
“So we did push quite hard and it was achieved that the Level 5 certificate is clearly personal risk and it’s actually defined as that. So it’s not designed to give advisers knowledge and professional qualifications to advise on business risk.”
The upshot is that under the code, the level five qualification covers general competence and if an adviser’s value proposition is to advise on business risk, it’s not good enough.
Instead of seeing business risk added to certification she would rather see a diploma level seven qualification, similar to what she did as a chartered life underwriter.
Farrow says looking at advisers’ websites, there are a lot more claiming to do business risk than are actually operating in the space according to insurers.
“I did a bit of a study three years ago and went onto 500 risk adviser websites to see how many disclosed or stated that part of their service proposition was business risk and over half of them did.”
In reality she suspects many wouldn’t actually have advice processes and procedures for this line of service.
It’s a risk, she says. “If I have a licence and I have said one of my service lines is business risk then I need to have a process. But if I had also said that I'm a specialist in business risk and I claim that on my website, then as an adviser I need to be able to demonstrate I have met and maintained professional development, competence, skills and knowledge. The challenge right now for advisers is where do I go to get education, training and competency in the business risk market?”
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In the early time in my career (70s and 80s) I was fortunate that I had several mentors who helped me understand the fundamentals of the applications of life insurance to business situations.
One thing that really helped was a course offered at the time by Auckland University called "Accountancy for non-Accountants". It taught me how to read and understand financial statements. It was a 2 hours session weekly over about 3 months. That set me in good stead when dealing with clients' accountants in the ensuing decades. I recommend that advisers aspiring to be competent in the field seek out such a course.
I was an avid reader of MDRT publications, in particular, the Annual Meeting Proceedings books that are full of excellent material shared by members.