December 8, 2021

IDII Series #3 – Transcript

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Fraser Jack
Thank you for joining us again, Katherine Hayes.

Katherine Hayes
Thank you.

Fraser Jack
Now we are talking about the mindset that advisors need to take forward into this new world. Tell us about it. Tell us about how you have conversations and your thinking in the way that you, you know, come to that critical thinking conversation with the client.

Katherine Hayes
Yeah, so at my stage of my practice, I probably spend more time working with brand new clients, those who’ve never had any insurances in the past before. So as far as this post, one October world, those conversations are a little bit easier to have, because they’ve never had prior covers. So what’s on offer is simply what’s there. So I think as much as it’s been feeling like a bit of doom and gloom with the loss of all these benefits that we’ve become accustomed to having, I think it’s important to have a mindset about your new clients clients have don’t have any cover, they don’t understand that the they don’t know that. And if it’s an option that’s not available to them, there’s no point lamenting over the past. So we just focus on finding a really good fit for what’s there. But I do think as far as mindset goes and care, we have to be more careful than ever before, even if somebody has never had income protection in the past, because there’s been a significant downside shift to the negative in terms of the offsets the exclusions, and the adjustments that have to be made. So as long as that’s happening in the background, I think it’s kind of business as usual, with a little bit of extra care. As far as existing clients, that’s a different, different kettle of fish, having those conversations, and going, Okay, it’s making them aware that they have something that they will never be able to get again. So it becomes valuable. As long as it remains affordable, they’re happy with it. If it becomes unaffordable, then yes, that’s when we’ve got to start having conversations around, what are the options, and there are a numerous range of options to have alterations to existing policy versus switching or, you know, adopting a wait and see approach even potentially,

Fraser Jack
yeah, now, you mentioned that the loss of benefits or the loss of not having the old products. And I think a lot of advisors are still in the headspace of they’re trying to get their head around the positive being positive for a new client saying this is what’s available. And this way you can have, when they when they know inside their own brains what was available previously, which has been, which is a little bit difficult. So going into those premium shock has been very difficult, tricky conversations for advisors, how have you had those conversations with the clients,

Katherine Hayes
I have been trying to prepare my clients in the last year or two except saying that, look, these policies, were at the peak of the best definitions we’re ever going to get when they end, what I would expect to see premium increases. And I just said, Look, insurers are losing money. But that’s because they’re paying claims counter to what, you know, what the media and you know, socials tell you insurance do pay claims. So I have been preparing them and saying yes, we probably expect some pay raises. But that’s because they need to be around to pay your claim should you need to claim. And if it does become a problem, let’s have a conversation. So that’s a conversation I’ve already prepared my clients for. So when they’re seeing it, it’s it’s less of a shock. That being said, I still do get some some nasty shocks, we’ve all seen some of the the price increases that have come through, you know, when when you get even something as low as 20 30%. And it’s happening every year, every second year, it’s pretty nasty. You know, we’ve all seen those 70% IP level premium shocks. And 100% 130%, I think from one I even saw, that is really tough to stomach that sometimes you see people they lose their faith in insurance. And I think that’s really, really damaged. But it’ll come down to the individual and where, where they’re at. And that’s what I got for it all those soft skills and, and help the clients see that their cover remains valuable. But there may come a point where it’s not, it’s not worth it for them. And we also have to acknowledge that as well.

Fraser Jack
Now that those those big increases have damaged a little bit of trust in the system in the products in in the advice that was provided even, you know, the clients are feeling a little bit of the I think the prices are feeling a little bit as well. Loss of trust. Yeah.

Katherine Hayes
Yeah. So for me, I don’t I must say I’m probably a little bit more of critical of insurers who have had, the surprise has been there rather than when there’s been some expectation given that there was a couple of insurers where you could say aggressive pricing discounts and experiences top message Oh, that looks like a great deal. But I know what that’s going to mean a couple of years down the track. And even though that looks like the best option right now, I was sort of avoiding any significant outlier insurer because I just thought no, that just means a big price hike down the track and, and I’ve had enough of those. So taking that approach has helped a little bit. But uh, yeah, finding an insurer who can be A little bit better in managing the costing of their books is something that I’ve grown to value more these days.

Fraser Jack
It’s interesting, isn’t it when you when you overlay your experience of, you know claims your experience of premium shocks your experience of insurers that what you know, they will keeping promises when it comes to paying claims, but the insurance, they want to communicate to you a little bit better. All that experience overlays your decision making process when it comes to you know, how you how you choose a specific product.

Katherine Hayes
Absolutely. And sometimes it can be as simple as the way the word a letter is worded to a client, or whether the insurer communicates with you as the advisor before they tell the client. So where you get experiences where they go to the client first, and you’re not aware of it. That’s really unpleasant, and that leaves a bad taste.

Fraser Jack
Yeah. Talk to me about the concept of getting your head around all the new products. This has been an interesting path. Obviously, you know, your products, a pretty big part of the legislation always has been. But tell us about getting your head around the different products and then to be able to then think about them from a from a where do you start point of view? From where do you go? Because because you can’t just compare apples with apples anymore?

Katherine Hayes
Absolutely, I think you really do have to go old school and do a deep dive into the PDS is. So I’ve been working on a spreadsheet that I’ve been building for myself. I’ve analyzed all the key insurers that are predominantly using the last couple of years. And now I’m moving on to the ones I use for more outlier situations. And unfortunately, as part of that analysis, I’ve looked at one of the insurers that I was previously using quite heavily and going, I don’t think I could use you anymore. There’s I don’t see how you’re going to fit in with my client base. Which is a shame because everything else with insurer works pretty well. But there was significant downside to the definitions put in place. So I think it’s really important to have a look at that in a deep level. As far as writing software and relying on that, from what I understand one of the writing software’s it’s the way it looks at superannuation contributions as an example. Some Some insurers are simply saying that your your insurable income might be your wage without super. And then you either can or cannot insure super on top of that. Others are saying it’s your total remuneration package, including super contributions. And you know, super may or may not form part of the insurable amount. So when you take that into account with the income replacement ratios, you’ve got a huge variation of what really can be insured. But one of the the insurance rating software, when it asks, Can you insure superannuation? It says yes, so but that doesn’t give you any detail whether it’s the SG rate, whether it’s part of the overall package, is it at the income replacement ratio, right is at 100%, up to a certain level, there’s really not a huge amount of detail detail in that side. But some of the digging that I’ve been doing is, and putting my little strategy notes on it. That’s what I’m doing. For each insurer, here are the pros for certain situations. And here is where certain client scenarios that we come across where we’re going to have to take significant care or just completely avoid this insurer, even if they are the best priced and product featured, because there may be some settings which would make them a detrimental fit for the client.

Fraser Jack
And this also makes advice even more complex, doesn’t it? Because trying to explain these different things to a client to allow them to understand how one product is different from another and why you’re choosing one over another.

Katherine Hayes
Yeah. Oh, absolutely. I mean, some of the perfect example would be sick leave, some insurers are choosing to offset sick leave. Even if you don’t take it, others will allow you to have a certain amount in store before that offset it and others will only offset it, if you happen to be double dipping on the IP benefit payments. If you look at some of the insurers, they will have waiting periods that will not match someone’s sick leave entitlements. So you could have somebody who has a 90 day wait. But if they’ve got, you know, six months, possibly of entitlements, they’re going to, you know, for me, I look at that guy. Now that’s a complaint we need to happen if you recommended that insurer, because they’re off work for six months, and they get nothing. So that could be a real issue for the advisor. So care has to be taken those scenarios, similar things with parental leave, there’s some issues around there. Whether you’re able to ensure ongoing business income, there’s so many elements to take into account. Yeah,

Fraser Jack
it’s interesting, there were those words complaint waiting to happen. I guess there’s two sides to this, though, because of you. If you put a lot of detail into this at the beginning explaining to the client look, there are 10 different things here. These are the most important ones, these things are going to come down later. Once you’ve got something like that in place. It makes it very difficult for I guess, that I guess the other products would have to change for them to come back into the into the realm.

Katherine Hayes
That’s right. And then you still have to put your overlay of you know who’s the best underwriter for their medical history on top of that. And that’s the scenario that I’m not looking for. To where someone might be clearly the best from an underwriting outcome, but there’s an exclusion or a clause that would be a significant detriment otherwise, so laying that out will be add an element of trickiness to it, not insurmountable, but certainly not more time consuming.

Fraser Jack
So it sounds a little bit more more like this. There’s more work to be done from the advisors point of view, the products products might be simpler, but it hasn’t really brought the cost down, because the cost to provide the advice is going to go. Yes. Catherine, thanks so much for being part of this particular episode. We look forward to catching you in the next one.

Katherine Hayes
Wonderful. Thank you.

Fraser Jack
Welcome back, Jeff.

Jeff Thurecht
Thanks, Fraser.

Fraser Jack
brilliant to have you along. Now, in this particular episode, we are talking about some of the mindset changes that really advisors need to take place. And of course, as you mentioned, you’ve got, you know, 24 staff and seven advisors in your practice, all of which we’ll be talking a lot about the the new approach, and how do you approach income protection? At the moment that tell us about your critical thinking? Has it been any major changes within the advisors mind,

Jeff Thurecht
I think we’re starting probably from a partner of low base is the right word. But, you know, when it comes to insurance, it has been a challenging environment for a number of years. So advisors are starting with a little bit of frustration and a little bit of, you know, some people thinking about throwing their hands in the air, I know, the statistics are suggesting a lot of people are walking away from insurance, which, you know, from my viewpoint is tragedy, because it’s such an important part of, of what we do for our clients. It’s such an important part of what we do for society, and it’s going to lead to bigger problems down the track. So there’s less people providing advice in this space than and he’s going to be, you know, it’s going to cause problems. So, you know, I’m doing my best, I’m an optimist by nature. So you know, I don’t find it too hard to kind of put a smile on my face most days. But doing my best to encourage our team to continue to look for those opportunities to help our clients in any way we can. And insurance being a big part of that. I think when it comes to the recent changes, kind of separating into two camps, it’s like for new clients who don’t have existing cover, then the mindset is pretty straightforward. It’s, you know, this is what we’ve got to work with, we’re going to do the best we possibly can for you with with the tools and the products we’ve got available to us. And we just get on with it. Any challenges with that are really in the advisors head. And that’s where we can get caught up going on. But the product is crap compared to what we used to have. And that might be true, but it’s what we’ve got. So there’s nothing we can do about that right now. So we’ve just got to get on with it and say, This is the best product, how can we help our client in the best way we can, for those existing clients, that is a harder one, because we do know that, at some point in time, we’re gonna have to bite the bullet and make those changes, potentially, because it’s going to become unsustainable from their cash flow, to keep those products. So that’s a hard one to get through. And I think, you know, we need to, I guess, continue to work with our team on that one. But I think there’s lots of stuff that I can think about in terms of, you know, advisors mindset, where I think we talked about in an earlier episode, a little bit of that, you know, disincentive for innovation and that first mover disadvantage, and that’s because, you know, we have become quite set in our ways and familiar with the products that we’ve got, and we like what we’ve got, and when somebody comes up with something, which might be a little bit different, it’s might be a really great idea. But it’s quite different. And then it’s hard to compare. And it’s hard to revise our kind of strategy for recommending it to clients and presenting it to clients, then there’s resistance, so it doesn’t get the support. And then so the insurance companies go well, what’s the point in innovating anymore? Because we don’t know no one wants to listen. So that’s a challenging in some ways, because yeah, APRA banging us on the head with these changes might actually be a good thing, because we’ve got no choice. We can’t sit here and think about whether we should change or not. We’ve got to change.

Fraser Jack
Yeah, exactly right. When when there was a massive amount of change out there, it really just has to be the mindset of what we get to do something new now not we’ve lost something that’s gone. You you touched on the concept of advisors walking away, which is going to be I guess, an issue that we’re kicking the can down the road a little bit, you know, the reward for the risk, I suppose of of writing risk is as become a lot less and sort of needs to be or might have to come back to the table as we get harder. Obviously, that was driven by a sustainability in the concept of trying to make premiums or profits more sustainable. Talk to us about that content of you know, a lot of advisors walking away and how that supply might be a supply and demand issue in the future. Yeah, I

Jeff Thurecht
can see really see both sides of this sort of conversation, I can really understand why advisors who’ve got a good business and they’re providing, you know, strategic advice and investment advice and retirement advice and cash flow and helping their clients in so many ways. Why they do sort of screw their nose up or get a bit put off by the insurance conversation because it can go wrong in so many ways or it can become challenging in so many ways because you’ve got the underwriting process which drags out you’ve got You know, people are being asked these invasive questions and uncovering things that they don’t really want to talk about, and then you’ve got delays, and then you’ve got the premium increases, you’ve got to handle off the back of that when you’ve got in, got it through. So, you know, it’s, it’s a hard area, and then it’s becoming more complicated as well. So when you’ve got so much, you’ve already got to know and understand and cover from a compliance viewpoint, it’s totally understandable. And maybe, maybe the specialist model is, is the right way to go. But we’ve got to make sure we’ve got enough specialists to sort of cover that off. And I heard recently, and you know, I don’t have a source for this, I can’t remember where I heard it. So you know, quite this, that there’s somewhere between 406 100 specialist insurance advisors in the market now when there used to be somewhere between four and 5000. So, you know, and when you top when you put on top of that, that many generalists aren’t choosing not to do insurance advice or doing very little of it anymore, then that’s a massive drop in in the Available Market to service clients and the need for this advices as much if not more than ever before. So there’s definitely a supply. You know, I think the supply will come back on on stream, I think there’s there’s the need for the advice. So I don’t think that’s necessarily diminished. But the the sorry, that that’s, that’s more the demand side know, the demands there. But the supply is, you know, there’s so few advisors who are really focusing on this space. And I know, I’ve seen a few people who have chosen to pivot their businesses in recent times and focus more on insurance, which I think he’s fantastic. So yeah,

Fraser Jack
yeah, I I’ve tend to see the same thing. I’ve seen that the specialists really innovate and try and work out ways of efficiencies, and doing those sorts of things. And I’ve also spoken to a lot of advisors that are now just referring that at out. It is though, you know, as you said, a huge drop in numbers, quoting the the stat that you heard somewhere, that’s 90% reduction, right? And in the amount of advisors providing advice in that space, and if anything, the demand is going up. So that I guess why I think that’s, that’s something that we’re kicking down kicking the can down the road. You mentioned earlier, the the old versus new conversation. If we, you know, the the new client, and there’s no choice we, it’s the new product. And you know, as you mentioned, you can control what you can control and you can’t worry about what you can’t, but with the old client, that were the existing client, we should say not old, that has a product in place and isn’t a product that we’ve feel or fear. And we don’t know, for sure, is unsustainable, but we feel it’s unsustainable, based on you know, some some economics, what we’re projecting forward. As people leave those books, we know that term books tend to get more expensive as people opt out of them. And there’s no new people coming in. Tell us tell us about your experience that you might have had in the past around that. Seeing that in action?

Jeff Thurecht
Yeah, certainly. I mean, as I said, we are philosophies that we want to help clients stick with the existing policies as long as they can. But knowing we are we do know, and we’re, we’re telling them each year, this, this increase is large, but it’s going to be large again, and it’s going to keep going up. But this is why we think you need to keep it you still need the level of cover. It’s still important to you and your overall plan. But also talking to them about when it might not be so important anymore. So let’s look at your overall financial position. And is that changing? And can we kind of tweak the sounds in short, I have a plan to when we don’t need to cover anymore. So that’s one part of it. But interestingly, I’m having a chat with a friend the other day talking about other experiences with this type of thing, one of our old, he’s old and wouldn’t be calling him Oh, but I won’t mention he’s no old mentor to him, when we first started in the business was sort of head of one of the licensee that we always talked about his experience with when endowment policies started becoming out of favor. And yeah, like you were saying he was very much of the view that more people would drop out, the bigger the pool available for those who stay in. So he was he was determined to live to 100 and keep his policy going because he thought he was going to be the only one left in the pool. So yeah, there is there is I guess a little bit of experience with with that sort of change. And I don’t think there’s any real opportunity in this case, there isn’t a pool, but in terms of the opportunity is really the quality of the product and the likelihood of of getting in good claims outcome, which is what they went into it for in the first place.

Fraser Jack
You mentioned the pool concept. I love this concept because obviously with the newer style of products after the endowment policies no longer became part of our vocabulary is that the premium is the only real input into the pool and the pool gets used up every year based on the amount of premium coming in. This is an interesting this. This draws an interesting topic and isn’t it because if we’re all in this together, the whole idea of insurance is to have a pool of people that all pitch in a bit of money and it goes goes to those who need it most that year. Then, you know, if we overlay a best interest duty, you know, you’re there to provide the invest in, you know, the what’s in the best interest of that individual single client? Does that then against the concept of having a pool of people, and we’re working together as a team in the pool, and then an individual client, then getting financial advice, tries to win, I guess begins their own pool?

Jeff Thurecht
Yeah, it’s an interesting, interesting question and concept. But yeah, I mean, I guess it does to a degree. It’s where you know, if we can hang in these these quality products, knowing that the pool is decreasing, there’s no new business going in. So we know that’s going to mean the frame, the premiums go up even more, because you’re not getting any new entrants to it. But it’s in the best interest of that client to. And I guess, to a degree, we know that it’s potentially impacting on the profitability of the insurance companies, which is a lesser concern, but it does impact sustainability long term. But you’re right, our first duty is to the best interests of our clients. And if that’s the best product for them, then that’s what we’ve got to recommend. And I guess there’s a degree of, we don’t have a great deal of confidence in the insurance companies seem to have gotten it right. So much, so that we think it’s going to be get definitely going to be a new sustainable product. And we want to kind of support that. You know, what I mean? It’s kind of, you know, if we need, we knew that they’d got it right, and that it was going to be sustainable. And this was a product of the future, then it’d be easier to jump. But yeah, the jury’s out on that one?

Fraser Jack
Well, yeah, it’s one of those Wait, and see, you mentioned, you mentioned best product, which, which I think is a really important part of this with best and just best product, best product for, for you to claim on. Should you claim that’s the I think that’s the key, but also the best product for all the other people in the pool to claim. So the better the product is for the individual, the actual worse the product is for the individual, because the better the product is for the pool to claim on it. And so there could be, you know, a critical thinking mindset shift concept here that says, actually, the easier it is to claim, the worse it is for you, should you not be claiming.

Jeff Thurecht
Yep, that’s right. That’s, that’s true. And the idea is that you have the policy, in case you claim. And if you do need to claim, then you want to maximize the probability you’re going to get the benefits that you need, based on your strategy and what was put in place. And that’s, I guess, that’s that’s the big difference, isn’t it with, you know, the current insurance model versus the endowment style and, you know, that type of thing.

Fraser Jack
Not for us to solve in this particular podcast. So there you go. Jeff, thanks so much for coming on and challenging a bit of the thinking that goes around this. We look forward to I look forward to chatting you when we catch up again, in the side, we’ll be covering some of the insurance philosophy.

Jeff Thurecht
Fantastic. Thanks, Fraser.

Fraser Jack
Welcome back, Natalie.

Natalie Cameron
Oh, hi, Fraser. It’s great to be back.

Fraser Jack
Thank you for joining us. Now we are diving into some some pretty heavy, heavy critical thinking in this particular episode, talking about some of the different mindsets and shifts that mindset shifts that advisors have to sort of make or or go through this process. And one of the things I wanted to ask you about was the was the concept around that a reasonable basis, I guess, have been able to talk about the replacement of, say, an existing product with a new style product, because I think that’s one of the things advisors are really struggling with at the moment.

Natalie Cameron
Oh, I have a, you know, a lot of sympathy for advisors, you know, who is sort of facing into this? This, this new question with these new products? I mean, what one of the one of the first things I would say is that nobody expects an advisors advice to be perfect. Not even ASIC, not even Africa. Maybe maybe your clients do. But you know, from a regulatory perspective, you know, it has to be advice that puts the client, you know, in a better position, then, then, you know, before the advice and when they started. So, what the advisor really needs to do, and, you know, I know, it’s, it’s kind of obvious, and I know, you know, all good advisors know this, but, you know, they they must find out what is in the best interests of the, of the client, and that that means working out what is their objectives, financial situation and needs, making reasonable inquiries about their circumstances and reasonable investigation of the old or new product. So it’s gonna be really important to really understand these new products, and then making the recommendation that the adviser believes is reasonable based on those relevant circumstances. It you know, that there are going to be compromises in advice. You know, in life, there are always compromises there are there are things to give up, and things to gain. And really the advisor is aiming at presenting the best possible option and being really clear about what those compromises are.

Fraser Jack
So really going through the client and again, that communication piece comes in the risks and trade offs, understanding and capturing client’s understanding and the decision making process. That’s right. Now best interest, Judy’s always been an intriguing part of the conversation because when I, when I see best interest, Judy, obviously I think about the best interests of the individual client. But of course, when we’re talking about risk or insurance, we’re talking about a pool of clients, which is all of you know, every single everyone else’s advisors clients, or advise to clients in the same pool. And then the concept for me of, if one of those clients has a wind, because they’ve been given a recommendation to do something that’s sort of better, or, or whatever it might be for that individual client, it could be moving against the pool of the other client or whatever everyone else has advised clients, and then the concept of best interest to different individual might actually move against the concept of the pool.

Natalie Cameron
If that is it’s a really fascinating perspective. And I think in a global sense, you know, insurance in the, you know, that the very nature of the, you know, the idea of pulling risk, and benefiting everyone, you know, benefiting those who both need it, but also benefiting everyone with the peace of mind that, you know, if they do need it, they’ll be able to access the support? I mean, that’s the very sort of fundamental crux of, of life insurance, really, in all insurance? I mean, I would say, you know, it’s certainly an interesting perspective. I mean, I would be really clear, though, as an advisor, what the requirements are, you know, in advising a client and, and what, what those requirements say, you know, really personal to the, to the client, you know, what, what is that person’s financial situation, circumstances needs, you know, what’s most important to them, you know, both in the short term, and the long term, you know, there’s a really long term product still, there might include, for example, you know, special benefits or things that they particularly request, but it’s also got a, I guess, harking back to, you know, our earlier conversation, it’s really got to also include what they can afford, in any, any consequences of the advice. So, you know, any, any texts or, you know, other consequences of of that advice. So, I would say, you know, interesting concept overall, you know, and it’s something to keep in mind, but really, what the, what the requirements are saying is, know, your client, understand what they want, communicate really well with them about what you’re recommending, and the positives and the negatives of that recommendation?

Fraser Jack
Yeah, yep. Now, the, and this comes back down to some of the mindset thinking that I think I that I hear this a lot that people think of this as the client versus the insurance company, in that respect. And then I also like to try and think of it on the concept of actually the client in the pool of all the other clients, and then the insurance company is just the administrator of that, that pool or the trustee of that pool, if you like, and that and that, you know, you know, our products have been so good, compared to the rest of the world, you know, they’ve been this amazing, this amazing product that has been far out, out, you know, far better than any other country in the world head. And we had this, this, this incredible policy. But, you know, it’s expensive to run that because it’s easy to claim, it’s not necessarily it’s easy for the one client to claim but it’s also easier for all the other clients in the pool to claim as well which makes it you know, I guess a leaky sieve rather than a bucket.

Natalie Cameron
You know, leaky sieve. I’ve actually, I’ve actually heard heard that used before in this context, and, but but like you and I can hear it when you talk about it, I’m very proud of our, you know, our, our superannuation system, including the the group insurance that comes along with it, you know, in our financial services industry, including insurance and life insurance, generally, you know, these have been products that really stepped up to meet particularly growing mental illness diagnoses and in lots of other things. So, so, I agree with you. You know, I wouldn’t like to lose the positive in all of that. I mean, I certainly having having been an insurance that a couple of different insurers in my career quite genuinely, it never felt like it never felt like it was us against the, the claimants and you know, I’ve run claims teams of, you know, three or 400 claims staff really, genuinely trying to, to process and and pay claims with our would you in my experience, anyway. So I agree with you, I think I think it was just a very difficult so situation, you know, more broadly, which is, which is that those products, simply, you know, were more generous than then the the premiums that were originally set could afford. And there was a, you know, a correction that would have to come from that, and that, that was skyrocketing insurance premiums. And, and now and I think you know, you know, to be fair to APRA, you know, really, you know, for many years, you know, making comments around this and trying to seek, you know, change in any intervention, and, and now coming out with something that, you know, is designed to sort of really put a, put a stop on that, that cycle and, and make things more sustainable. I hope that answers your question.

Fraser Jack
Does it want to ask you also about research software, because I think the concept of, you know, rating, premium versus price, you know, more, you know, lower price, more, more more benefits, and lower price more benefits, has been a bit of a crutch set, I think advisors have leaned on for some time. How do you see that changing? Or how do you see that crutch when it comes to, you know, you mentioned, you mentioned other things like affordability and, and, you know, really making sure that’s in the best interest? Do you see advisors now moving, not just for for, you know, that crutch of premium versus benefits, but also taking into a lot of other things into account when it comes to, you know, understanding or knowing the client or understanding how different products might work? Or how do you see this working?

Natalie Cameron
Ah, you know, I, I actually have a lot of faith in the advice community, that they are going to just rise to this new challenge. And, and, you know, and I, you know, really not just look at, and hopefully they, you know, they weren’t already, but not just look at the product features and the extent of coverage, but also look at all of the other circumstances, you know, including affordability, and, and make sure, you know, they’re, they’re tailoring the suit to the client rather than, you know, throwing a blanket over them. And in the end, I think the outcome will be a good one. For for, for clients, and for advisors, in front insurance in the general ecosystem of insurance, provided, it is really well communicated, what these changes are doing both positive and negative for that customer, what what I hope doesn’t happen is that there is a kind of missing expectations and reality between what’s covered or not, but I feel like, from the questions I’ve sort of been getting in the, you know, the various presentations I’ve been asked to, I feel like that’s very forefront in advisors minds. And this, you know, this new challenge is just something that’s going to, you know, cause probably a step up even further in the quality of advice.

Fraser Jack
Yeah, I just want to go back a little bit a step and just try and get my head around this as well. The contemplating of that, you know, for advisors to contemplate replacing a an existing product, an older style product, with a new product at the moment. I think a lot of advisors just still struggling to get their head around that is that, I think, because Because to be fair, I think some of the fear around that is around the complaint around the fact that it could have paid on the old one when it didn’t pay on the new one. You know, I think I think advisors are still struggling with that a little bit. Any thoughts or ideas?

Natalie Cameron
Well, I think it’s, I genuinely can understand, you know, the, the concern around that, because there is a feeling that you want to give your client the very best cover that’s available. But I’ve seen, I’ve seen this phrase previously and apologize to whoever I’m ripping it off from right. I do think it was a good one, i i This product does not equal best interests. And and that is because what the what the regulations are saying is not find the most extensive product, but find out about your client first. You know, first off, you know, who is this person? What are their hopes, dreams, financial situation needs and, and then tailor a recommendation to them, that takes into account those things. And very, very importantly explains to them the options and you know, you know, if there is an option for a product that doesn’t cover as much But, you know, but it’s really much more affordable into the future, especially, then that might well be the right thing to recommend. And I think that is actually what the requirements said anyway, I mean, that’s, that’s what ASIC asks advisors to do.

Fraser Jack
I love that saying best interest does not equal sorry, best product does not equal to best interest. Fantastic sign. So does this does this mean that for an advisor who, you know, talks to their client who’s got preferences around, say sustainability or or not getting bill shock, and they become sort of a LEED preference for a client, then you can certainly look at replacing you with sorry, replacing the old ones with new?

Natalie Cameron
Oh, 100%, I think I think it’s a really viable option. We’ve had a lot of complaints from people who they might have had the best product, but if they’re not going to be able to afford it, before a claim event happens, and they’re going to need to let that lapse, then that certainly wasn’t a good recommendation. So So absolutely, affordability is, is one of the things it’s not the only thing, but it’s certainly one of the things that an advisor needs to take into account, you know, the, you know, the corp SEC talks about advisors, obligations in terms of switching advice, and that absolutely needs to include a lot of detail about the cost of the client. And as well as the benefits that the client may lose as a result of the switching. You know, there’s also the, you know, the fasea code of ethics, that also talks about best interests, and making sure your client understands the benefits, costs and risks of the financial product that is being recommended. And in certainly Africa, in handling compliance, you know, we’ll overlay that entire situation with, you know, a fairness lens to see whether the advisor, you know, took into account, the things that they they could, they could discover about the client at that time, and, you know, and base their, their advice in good faith, you know, on what they were finding out.

Fraser Jack
Yep. Tell us a bit more about that fairness lens, how does it work? Practically? I know, you’ve sort of got committees and groups and different people you go to?

Natalie Cameron
Yeah, well, I mean, it’s really interesting, because, you know, we don’t just apply the law when we consider complaints. And this sometimes makes people nervous. But actually, I think, you know, you know, if you if you sort of get into the detail, it’s actually, you know, a really good thing. So we apply legal principles, absolutely. Also, industry codes and guidance, including the code of ethics, then we look at also good industry practice. And in previous determinations that FCAs made, so we try to be consistent. But we also have this, what is fair in all the circumstances. So an advisor, who is genuinely trying to understand what their client needs, and once and, in his tried to meet that in a, in a recommendation, you know, shouldn’t be responsible for things that happened that couldn’t they couldn’t have foreseen, you know, for example, or the wrong information was provided to them. But what I, what I would say is that we, we would expect, you know, a good effort at communicating what the client was getting, that you know, the benefits and risks. And also, I would strongly recommend good documentation so that we can, we can look back sometimes several years prior, and, you know, and have a clearer picture of what happened at the time.

Fraser Jack
Natalie, thanks so much for coming on this particular episode. We look forward to catching you in the next one.

Natalie Cameron
It was it was a pleasure to be here. Thanks, Fraser.

Fraser Jack
Thank you for joining us again, Ben Martin.

Benjamin Martin
Thank you, Fraser.

Fraser Jack
Now, in this particular episode, we are challenging some of the thinking that goes on, for advisors inside their heads around what it is, in their mind shift their mind set for turning up each day and understanding what the new products are going to do and, and how to talk to their clients about it. Tell us a little bit about the mindset shift. Obviously, you speak to advisors every day, you know, what are they struggling with? And one of the things you sort of say to them about the new world versus the old world?

Benjamin Martin
Yeah, look, it’s it’s the reality is it’s unsettled. A lot of our advisors across the country, it’s just another round of regulatory change that we need to digest and navigate the advisors that we’ve been working with that seem to be making inroads in this space. A somewhat Boyd if I can be honest, Fraser, because fundamentally, what they keep coming back to is yes, we’ve got significant change on the horizon that we need to perhaps refine and finesse our advice process, particularly when it comes to income protection, retail advice, but they’re somewhat buoyed because they know that while APRA had stepped in and impose a whole bunch of measures. It’s in the long term interests of the industry, their practice and ultimately their clients. And that’s because if we get this right, we’re going to end up with a with a range of IP products that are and I hate to use the word fit for purpose. But that is code for IP contracts that are there to replace a portion of the client’s income in a fair and meaningful way, by reference to what they were deriving by reference to the income that they were earning prior to the disablement. And then there are mechanisms built into this contract that ultimately encourage and help the client return to wellness and return to work where we know and advisors understand that is in their best interest long term. Okay, so in in some respects, yes, we’ve got lots of change on Horizons is over complicated advice and practice in the real world. But if we can get it, right, there’s an opportunity here for us to build products that are fit for purpose, that are cost effective, that are affordable, that are liberated, that are liberated from this, from those traditional ad hoc rate rises. And that can be only a good thing, because we remove that element of surprise for clients, we’re able to set the right expectations from the outset. And ultimately, hopefully, that’s going to result in a reduction in lapses for our clients and ensure clients have cover and the contracts that they can lean on in times when they need it most.

Fraser Jack
Yeah, you mentioned fit for purpose. And whilst we like neither of us like using that term, it reminds me of that, you know, the rest of the world has contracts that are a certain, you know, a way more like our new contracts, and we just happen to have really, really good contracts here. So feels like we’re having something taken away. But essentially, we’re sort of just coming back into line with the rest of the world.

Benjamin Martin
Yeah, and look, abra Abra, abra pulled that out and alluded to the fact that we are a bit of an outlier when you compare our traditional IP product settings with comparable jurisdictions, jurisdictions around the OECD. So I get that, and I think a lot of advisors understand that. And look, that’s that’s been, that was a primary reason why they put a line through agreed value, income protection policies, as well as those overly those bells and whistles that created those overly excessive income replacement ratios. Because there was that fundamental disconnect between the insured benefit that’s being paid out at claim time and the income that was being received in the lead up to the injury or illness that occurred.

Fraser Jack
Yeah. Now, earlier on, you mentioned step changes, obviously, we we’ve seen some steps previously, but we’ve still got some steps to go when it comes. Is that mean, we’ve got more instability? Or is that just mean, we sort of, we know what’s coming, we just need to work out how to, you know, hit around it?

Benjamin Martin
Yeah, look, I mean, step change. In the sense, my reference earlier to step change was the fact that APRA needed to step in and impose changes in the industry, because, unfortunately, when left to our own devices, we just weren’t going to change on our own accord. And unfortunately, we got to a position where the weather regulator had to step in and impose these measures on insurance. But there’s a couple of things also, look, they didn’t get it all right from the very beginning, I think it’s worth calling out Fraser, although there was one particular measure there around the five year initial contract term for these next generation IP policies. That particular measure was meant to kick off from October this year, but due to a whole bunch of implementation issues, that emerged during the consultation process, it was decided and settled that that particular measure would be deferred. The kickoff date for that would be deferred until this time next year, to allow the industry a little bit more breathing space and scope to work out how it would be implemented in practice.

Fraser Jack
In the, in the minds of many advisors, there’s been a little bit of I’ve spoken to some advisors that have said that they just you know, outsource or refer risk off now. Is this the the birthplace of the new risk specialist?

Benjamin Martin
Look, I my work okay, so I hadn’t actually ever thought about that I had seen commentary on the topic might my starting point there, Fraser is that if, if you look at the current settings, there’s lots of variation. There’s lots of variation in terms of the underlying terms and conditions and features of these new constructs. Now, if I’m an advisor, and I’m providing a recommendation to a client to acquire a particular income protection contract, I, in this new world of variation I need to be across what those different features are and how that fits in with my client’s underlying needs, goals and objectives. If I don’t, then arguably, I’m not meeting best interest duty. So in that regard, I in my humble opinion, I think the wrong The specialist risk advisor is much more important in this new world, in comparison to our old settings where there was a lot of consistency, and we didn’t have as much variation within the traditional IP contracts.

Fraser Jack
So in the past, it was very easy to jump on a Software Rating and work out what was going to be the best shot, again, best interest based on product and pricing. But now it’s much more important to have a human go through that.

Benjamin Martin
Most certainly, and I can give you an example if we look at if you look at the requirements that must be met in the waiting period, for example, and you analyze the differences across the market, there’s lots of variation. So for example, some, some insurers require the claimant to be totally disabled for the entire waiting period. Others require the claimant to be totally disabled for only one day. Now, depending on the client’s occupation, and nature of gainful employment, aligning a particular contract with certain requirements within the waiting period is a key and important consideration. Going into that blindly without knowing that level of detail, which perhaps is which which perhaps your non risk advisor may not be across is something that is fraught with danger, particularly from a best interest duty perspective.

Fraser Jack
Yep. Hey, Ben, thanks so much for coming on this particular episode, we were the Lenten towards the critical thinking and leadership. We look forward to catching you in the next episode when we get stuck into an advisors insurance philosophy.

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