December 8, 2021

IDII Series #4 – Transcript

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

Katherine Hayes
Hello.

Fraser Jack
Well, now we are talking about insurance philosophies. Obviously, this is something that we sort of touched on in the previous episode. But it really does come back down to how do you now work out what your insurance philosophy is these days?

Katherine Hayes
Honestly, it really hasn’t changed a great deal. So I’ve got a in house philosophy of philosophy about how I partner income protection, TPD trauma, and life cover that philosophy really hasn’t changed. I think it was quite tempting in the early stages to go, oh, gosh, the loss of any loss of own and moving into any AUC. For most insurers, with all these changes, maybe it means potentially relying more on or not for TPD more, but then chatting to the insurers and looking at some of the stats about how often TPD claims are paid. And based on a partial permit scenario thought, You know what, that’s really leaving yourself wide open. So haven’t adjusted the strategy of TPD or NOC is something desired by a client, we focus on that, but we don’t, we won’t be looking at it as a at the end of two years or five years, IP stops, and we rely on TPD. I think that would be a really dangerous strategy to shift into that thinking as a result of these changes.

Fraser Jack
How do you how do you talk to your clients about the fact that you have this philosophy in place? And it’s, to me any philosophy is like it’s a it’s your history, your experience, it’s also your bias, you know, like, because you’ve seen stuff that they haven’t,

Katherine Hayes
absolutely, because I have, I’ve seen advisors who go with the approach of if you got diagnosed with say, cancer or heart attack, you could use trauma to pay off your mortgage. Absolutely, you could do that. But that’s not my house philosophy. So my house philosophy, when it comes to trauma insurance is I look at it, it’s a temporary situation, you’re either going to get better, you’re going to be what you’re dealing with, but it will leave you with a permanent disability, or you will not beat it. And then you know, those latter two scenarios, life insurance, and TPD take over in those cases. If you get better and you’re fully restored, you don’t need it. But it could be a couple of years before you work out your landing zone. So my philosophy around trauma has always been over two to three years, we need to manage the impact of that the lifestyle choices, the financial implications, drop in income, and work through that with clients saying what would you want at the end of the day is options available to you. And it’s kind of like a pick and mix. And they talk about what they value. And that helps me work at how much cover that they’d like to have. And then I talk them through my philosophies around medical expenses. And they can either agree or disagree, but that’s all recorded. And as part of this, I literally have a I’ve had a drawn up, it’s a drawing that actually shows how the different covers work together with your income protection being that that cash flow piece with your trauma and your TPD running parallel is either short term and longer term, you know, capital, primarily capital solutions with, you know, once you cross that, that border life insurance becomes about everybody else. Or I like the idea that my clients love that drawing. I was constantly having them take photos of it. So I decided to get it professionally drawn up and built into my factfinder.

Fraser Jack
That’s super cool. I love it. I love the visual of the drawing. And it does actually reflect I you know, I think I used to say to people, it’s more of an art than a science anyway, getting this right. And I always used to say, you know, there’s always going to wish you had more cover at claim time. And you’re always going to wish you had less premium time. So there’s no right or wrong. It’s just trying to get it. Get it to work for them. Now, you mentioned all recorded Tell me about that you have that you have that insurance, possibly conversation. And you record it.

Katherine Hayes
Yeah, so my face to face meetings I didn’t record in the past, I just do the farmer after. But ever since COVID, hit in 2020 Obviously move to a lot of zoom meetings like most other people did. And I noticed with some parents homeschooling there’ll be a parent getting up medic about constantly distracted, and I started feeling a little bit nervous going, how can I meet that best interest duty, knowing my clients having informed consent if they were clearly distracted? So I started recording the meetings and said, I’m going to record this and I’m going to send you a copy of the recording. Simply because if there is anything that you want to revisit, here it is, or or it’s safe that issue is sometimes you book in a couple and only one is available, the other one gets called away and it’s like, fine, we’re good to go ahead. Here’s the copy. And I will be checking with your partner that they watched our meeting. And I now do that instead of file notes. I record everything. And, and clients really appreciate it. They say Oh, it’s so good. Because that way if we ever forget, and I know a couple advisors are going oh, you have to be really careful what you say. And that was a little bit of nervous Ness on that side of things. You think, okay, is this open to missing interpretation? But between the drawings and what we talked about it’s it’s all pretty clear and you know, it’s very educational approach that I take clients through so There’s lots of informed consent along the way, which is really good.

Fraser Jack
I think it’s a fantastic idea recording and getting on consent. And as in the time, as you said, the file note compensation, or the file notes become a lot easier. Have you ever had any been pushed back and not want to be recorded

Katherine Hayes
only once. And it really made me really nervous. It was my first appointment back in the office. And I thought, You know what, I’m going to try and record this meeting. So I brought up my laptop, opened up a one sided Zoom meeting, which I recorded, and I said to the client, I’m going to record this. Is that, okay? And he said, Yes. And I have a setting on my Zoom account. So if you’re recording, it has to announce and request permission, so and it gives that order. And I did that in the meeting, and we got to the end. And he was quite upset, because he thought it was audio only, despite the looking at him. And he wasn’t familiar with Zoom. And I had to sit there and actually delete the video portion of the conversation, like sit there and maybe do it. And I was like, wow, that was a really bad experience for using recording in the office. But that was one out of hundreds of interactions. And so I just thought, Okay, I just need to be a little bit more clear the way I communicated this. But he was happy to be audio recorded just didn’t understand that there was a video element to it as well, yeah.

Fraser Jack
And it’s possible to turn the video off, if it’s the case. But this is the really interesting part that if that’s part of your philosophy, then it just becomes part of your process. And in the conversation become releasing,

Katherine Hayes
I explained the intent. And I said, this is to provide you with an access to be able to revisit this at any time you wish. And as they go on, but not likely to visit and so well, it’s good that you have it, you don’t have to. But it also saves me from being able to do a file now, which means I could spend more time with people like yourself. Um, if I did that, I probably wouldn’t be able to see when I did. And they’re like, Okay, make sense.

Fraser Jack
Wonderful. Do you have a philosophy around premium affordability and cash flow and those sorts of things? Yeah. So.

Katherine Hayes
So as part of my diagrams and whatnot, we talk about ownerships, options, structuring cover and the like. And I do tend to present a certain option, for example, with IP splits, especially part of the changes. If I’ve got someone with a lot of young kids, and they’re going through those expense, that really expensive phase of life, we talk about the options of what it could mean for their budget. And they’ll give me a preference as to say funding cover from Super versus personal cash flow, where possible, I don’t get a exact budget directive to begin with. But what I do tell them is, as part of the exercise, I’m asking them about everything that they want to happen in place as far as outcomes. So at the end of that process, I tell them at the next meeting, not only will I have their pre assessments completed to let them know what terms and coverage is likely available, researching any existing cover that may have which is 99% of the time, which is what’s in Super, I will come to them with Option A, which is what everything that they want. And if that is they happy with the premiums, we just do that. But life’s not always like that. So I come up with an option B and an option C, option B, we’ll just strip out some of the more niceties or less essential things. Whereas a option C is a generally a do not go below this, because if something does happen, you’ll have those benefits there. But you may not financially recover as a result, because at the end of the day, you do not have to ensure everything. And that’s I think a trap that we fall into, it is a valid strategy for a client to go, I will retain that risk, I don’t have to transfer it. And that looking at that in our second meeting that trade off between the cost of the premiums and the perceived value of the sum insured. And that’s what we talked through in the second meeting. And if there’s a budget as a concern, we might say, Okay, is it more important to put your budget towards a higher or lower level of trauma? Or do we focus on giving you access to TPD? Oh, knock or, you know, we have those conversations. So then when we do get to the advice piece, the client already understands how much they’re expecting, spend broadly. And are there any outcomes they’re gonna have to forego? Because what I want to avoid is having a client sign a revised authority to proceed because I think that’s where the danger is danger lies, because it’s not ample opportunity to explain the risks for them to understand what they’ve had to give up. But if they’ve had a week or two in between their decision, receiving the advice and then implementing, I think that mitigates that risk to a huge degree.

Fraser Jack
Yep. Wonderful, and that retain versus transfer conversations pretty important, too. Thank you so much. I mean, I was always I was also going to throw in the mix there that the I heard was somebody say, once that, you know, the, it’s, it’s when somebody can least afford the insurance that they needed the most. And when they when they can’t afford the insurance is that that’s what not when they needed the most. So it’s a tricky one. Yes. Catherine. Thanks so much. We look forward to catching you in the next session.

Katherine Hayes
Catch you then!

Fraser Jack
So thanks for joining us again. Jeff. Welcome back.

Jeff Thurecht
Thanks, Fraser. Good to be here. We’ve enjoyed the chat. So far, looking forward to more

Fraser Jack
fantastic. We are talking in this particular episode around philosophies. And I think this is going to be super helpful on conversations for advisors, because they are now having to reassess what their insurance philosophy is, as well, it was very similar when all the products were very similar, almost the same. That you, you know, when when you’re making the choice between what, you know, company you might be looking at, you’re actually just going okay, great. Well, you know, we have the same philosophy from company to company, but that’s all changing now.

Jeff Thurecht
Yeah, sure, is, I guess, to preface this conversation and like, say, you know, our, our insurance philosophy is currently a work in progress, because this is all very new. And we’re, you know, we’re just talking to different people, bouncing ideas around and looking at different products, right, as well. So, yeah, a lot of what of what we might talk about now is kind of just ideas bouncing around in my head without having committed anything to writing at this stage. But I think you know, that the products are so different from each other, in this space now, where it used to be reasonably, you know, homogenous. Now, you know, there’s such a vast range. So getting your head around the different products is really an important starting point. And, you know, that’s, that’s more complicated. And I think becoming more of a specialist area. And I know, you know, I know, you’ve got one particular guest, who’s on the panel here who loves reading PDFs is cover to cover, and she’ll be all over it. Whereas for the mere mortals, like myself, that’s a bit more challenging. But it’s an important starting area to have a look at the different products and think about where they do or don’t fit into an existing philosophy. And what needs to change, and we do know from Income Protection viewpoint are definitely going to need to change. It’s just yeah, what is that exactly look like? It’s a few options.

Fraser Jack
Yeah, as we go through this, as we go through the reading of policies, and we understand, you know, when definitions do and don’t kick in, and what happens, you know, throughout claims, and the changes that take place throughout claims claims are no longer a consistent thing. They will, they’ll change over time, once as we start getting to know the product, and then understanding the history and background and experience that every advisor will bring into that which is going to be all different. Some some people will have had lots of claims experience, and they will bring different things to people who have had less claims experience. As those these philosophies form, I guess you could say, which is basically the experience plus the new products. Do you think that advice or advice firms for then start to individualize their philosophy the same way, say a risk philosophy might sorry, an investment philosophy might be different from company to company?

Jeff Thurecht
I think there’s more chance of that happening now than there was previously. Yeah. I’ve had a few conversations in recent weeks, where people were throwing some ideas that I hadn’t hadn’t thought about, about how they might tackle it, which is great. Yeah, as I said, haven’t committed to anyone holds balls yet. But yeah, there are more of those options to throw around now. So I definitely think that will be the case. I think it’s it’s almost looking at income protection becomes more of a holistic piece. Now, potentially, then previously, where he previously had a product, which just sorted that out, and it was, you know, protect 75% of your income. And, you know, in the main you do at age 65, and away you go, it’s not as straightforward anymore. So it’s how did the other parts of the risk puzzle, integrate into that to provide the you know, I guess, to do what they were doing before, but also how do they add the income protection and, you know, protecting your overall position and your overall income for longer? So that’s probably the biggest change that we’re facing in that space.

Fraser Jack
You mentioned in one of the earlier episodes, how, you know, the the income protection was always the starting point. And, and we mentioned the loss leader part, but with the starting point, and then you’d build the other products, the lump sum products around that, do you think that this, these changes will actually mean that there’s insurance philosophies, that becomes more so the cases would would tie in one company for per client,

Jeff Thurecht
I think it will still be the case that there’s the it’s the sort of foundation Cornerstone piece, but I think it’s not, not a standalone sort of conversation anymore. So I think that will still still hold. And I think that’s where it’d be interesting to see the product innovation and development and how some companies have come out with their products now. And, you know, they’re kind of, you know, way, way out here compared to while I was already out there. And if they find that they’re just not getting any business, they’re going to have to make some changes, whereas these other ones out here might sort of corner the market for a period of time. So that might mean that, I guess you as those changes come through, we might focus our attention on one or two companies more so than previously where we had a Yeah, we still have a broad APL, and but when it comes to in income protection, knowing those products more intimately where they fit may mean that we have to gravitate to a smaller kind of range of companies in the meantime. And that means they’re going to get our ups on business as well.

Fraser Jack
Yes, I was thinking that, as well, I was thinking that Tom, you know, the way that you’ll develop a philosophy will determine that you have, essentially, and you’ll be communicating to the client. Well, this is what I believe in. So this is what I’m going to recommend, as you mentioned before, you know, you’re the device provider, it’s comes back to you and your beliefs and your history and experience. So it’s almost like there’ll be less companies in there maybe three companies that you’re looking at not the not the whole spectrum of the market anymore.

Jeff Thurecht
Yep, I think it will be. I think that’s already started becoming a little bit clearer, just in the first few weeks of analyzing these new products that some of them will find a difficult to recommend, based on their, their definitions and terms compared to others. And the price, yeah, the price is a consideration. But it’s a long way down, because there’s so many other checks and balances to go through now, to see where they stack up in terms of their definitions and quality of the products. So we’re already starting to look at, you know, kind of narrowing probably where that fits for those new clients. And we’ve only we’ve only done a couple of SL A’s and implemented a couple of policies at this stage. But it’s now definitely narrowing our search, I suppose.

Fraser Jack
Yeah, I couldn’t agree more in the in the concept of, you know, reasonable coming up with that reasonable basis, or having that philosophy or informing your client as to this is what we believe in. And this is why we’ve come up with this, you know, these particular recommendations?

Jeff Thurecht
Yep. I think the philosophy around the existing client book is also another one, which we’ve touched on in the past. And that’s fine, which, right? We’re grappling with a little bit. And so yeah, we’ve kind of almost gonna have two philosophies. I guess the big picture philosophy is probably, you know, the same in terms of, you know, I think we still believe income protection to age 65 is a good, good place to be, but how you protect that income to age 65 might be different to the old way?

Fraser Jack
Yeah, I think I think it was very easy in the past to go, here’s a strategy, we need to cover you, you know, the strategy. So off the back of the strategy, we need product. It kind of feels at the moment, we’re starting with product, and then looking at what strategy is that? Do you feel that as well? Or is that something that I’m off the mark with?

Jeff Thurecht
I think potentially the products come in a little bit earlier into the process. But I still think we’re starting with strategy. We’re still starting with, you know, does this client need income protection? Do they need life insurance, trauma? TPD? And why? What purpose do they need it for? Where does it fit into their overall financial plan? What would happen if they didn’t have it? And is that important to them? So I still think we’re going through that process. But once we’ve got through that, without zeroing in closer on, well, based on, you know, their specific needs and their strategy, we know that the product suite is limited and a bit more limited than it was. So we probably just get into product a little bit earlier, but still starting with strategy for sure.

Fraser Jack
Yep. And when, when it comes to the needs analysis, or questioning that you’re doing with your clients, does this new philosophy have to now come into that part of the process, asking questions around, you know, sustainability or questions around different types of different types of things?

Jeff Thurecht
Yeah, well, I don’t think, again, I don’t think we’ll ask questions around sustainability, necessarily, other than the sustainability of the client’s cash flow position, because they’ve got to be able to keep paying paying the premiums. So that’s an important one. But it’s looking at I think, potentially, looking more at the plan and timeframes and milestones and stepping stones as to, you know, the different moving pieces, as opposed to just going we’re going to have 75% till age 65, which is all three tier definition. And you know, there anything goes wrong, you’ll be you’ll be swayed, it’s going to be more more nuanced than that now. So we’ve probably got to flesh that out a little bit and say, Well, you know, for the first five years, it’s vital that you have maximum income replacement, but after five years, yeah, you kid to finish school and, you know, that type of stuff. So maybe we don’t need to have, you know, we can afford to step back in the income replacement ratio at that stage, or maybe we were more concerned with a lump sum at that point in time, or those types of things, I think, become potentially a little bit more nuanced.

Fraser Jack
Yeah, an incredible year, it is a lot more in depth to go through. There’s probably a little bit more in that case to list set and forget type mentality around insurance. Now it’s more actively managed portfolios.

Jeff Thurecht
Yeah, I agree with that. For sure. I think there’s some opportunity. I mean, that’s a really hard piece of the puzzle, though, to work with clients on this scenario. And you know, that I guess the technology and the systems that the insurers have available for us at the moment, don’t allow that to happen very easily. If you want to look at well, what would happen if you change this waiting period or this benefit period or added benefit on or reduce the sum insured, then it can take two or three weeks to get an enforced quite back from insurer. Some companies have gotten slightly better, but a lot of them haven’t. So, you know, for that process to occur, I think there’s a big opportunity for insurers in that space to make that a lot easier. If you think about it from the viewpoint of they make that easier. The likelihood of us keeping the business with them, is significantly higher. But it’s also the likelihood of us considering their new products and switches, they can make it easy for us to model, you know, what does it look like if we combine a new product with an old product by, you know, extending the waiting period on their existing income protection to two years, have a new product coming with a T benefit? If we can quite that all together? Or make that easy to mix and match that? Then it’s much more likely that we’ll give that a consideration? Yep.

Fraser Jack
Absolutely. That’s it’s been around a long time, make it easy, and, and it’s good way to do business with people. Hey, Jeff, thanks so much for coming in. Obviously, there’s at the time of, you know, recording this and sending it out. There’s probably more questions than answers in this particular place. But really, thank you, thank you so much for coming on and sharing your experience.

Jeff Thurecht
Yeah, you’re welcome.

Fraser Jack
Okay, to the next episode.

Jeff Thurecht
Thanks mate.

Fraser Jack
Thank you for joining me again, Natalie. Cameron.

Natalie Cameron
Oh, great to be here. Again, Fraser. Thank you.

Fraser Jack
You’re welcome. Thank you for being here. We are talking about insurance philosophy. And the concept of Well, every single advisor out there has got some, some experience some philosophies on the different parts of the insurance that they do and don’t like, there’s no one size fits all. And I love that the term tailored suit, not a blanket that you mentioned in the previous episode.

Natalie Cameron
It’s so concerning being recorded on a podcast phrase, because I never know what crazy analogy I’m going to come up with next.

Fraser Jack
I love it. I love it. Doug, told you talk to us about advisors having their there’s their suit tailoring concept of in their insurance philosophy?

Natalie Cameron
Well, I guess the, I guess the fact is, there’s no single pattern that’s in what what the regulator’s or the other legislation really requires is, is to not start with what you want the suit to be. But to start with the person and, you know, and what their body needs. So, you know, that, you know, to cover our ground, and, you know, I apologize, I apologize to everyone who knows this inside out. But, you know, the Corporations Act that it requires advisors to act in the best interests of their client when they’re giving personal advice. And in order to demonstrate that the advisor has to show that they’ve identified the objectives, financial situation in the to the client, that they’ve now if I continue with my analogy, that they’ve, you know, that they’ve really asked the client, are you, you know, you’re hitting somewhere tropical, in the summer? Are you, you know, or do you, you know, do you live in the Arctic? And, you know, is it a, is it a black tie event, or are you going casual and, and then finding out what it is they’re hoping for in the future. And in this, it also does include what they can afford. And maybe in my analogy that wants the same for both of the tailor and an advisors, giving advice. It’s just really important that what people purchase, is when it’s an ongoing cost to something that they can afford now, but also into the future. I mean, you know, you know, the wrong advice can have a significant impact on superannuation that can, you know, have an impact on quality of life. If, if people do not understand what it is they’re signing up for in terms of cost.

Fraser Jack
Yeah, I love the concept of standing with the person, not the product. The affordability, again, has raised its head here is this, is there something around this insurance philosophy, where you might look at a client’s existing purchasing decision making process, you know, do they drive a Toyota? Are they driving a Lexus or something? You know, like, is there a, is there a purchasing conversation that says, you know, what, if they want, if they’re interested in high quality products, they might be interested in a high quality insurance product, or if they’re interested in height, the analogy maybe came out type type suits came out close, rather than tailored suits. Is there something in that with regards to them? Where their their values lie in their existing decision making process around purchases?

Natalie Cameron
Oh, I mean, look, you know, there might be and I’m sure that, you know, if nobody’s done their psychology thesis on this already, I think they should. But, you know, at the same time, you know, we have to take every individual and not make assumptions about them, even based on what they’ve done in the past. And, you know, I mean, I I’m a, you know, I’ve got two small kids Let me tell you big fan of came up. And also a big fan of, you know, really good, you know, financial protection and, you know, other things, you know, education, other things that I might spend my money on. I guess it doesn’t always follow that you’re a big spender, and you might want the most expensive product.

Fraser Jack
Yep, yep. Now, I sort of touched on the concept before about an advisors, experience and history. And that could also come into and I guess part of the past few months has formed, you know, advisors experience, whether it be, you know, losing trust in things or gaining trust and things depending on how claims go or Bill shop comes in the door. But the big thing to me is that having advisors that can actually then demonstrate or have a conversation with the client to say, This is what my previous experience has been. And this is what implementing my decision making process. And so giving the client the opportunity to say, actually, I do or don’t agree with that particular concept. I mean, at the same way an advisor might be very heavy into, say, sustainability for ESG type investing on their investment portfolios, they may also have, you know, biases around their insurance portfolio, that if disclosed to the client, could mean the clients actually have the opportunity to agree or disagree with that philosophy before they, you know, go ahead with the insurance.

Natalie Cameron
What’s it? It’s another fascinating area of psychology, isn’t it? I mean, I believe we’re all riddled with bias. And, you know, that’s, that’s just a human state, it’s nothing that you can completely eradicate, I think the the question is, as a professional, you know, do you have practices and process in a way of, you know, looking objectively at the question you’ve got before you, and, you know, making the best recommendation, even if it wouldn’t be the best one for you, or even if you’ve once had a bad experience, you know, with, with one insurer, say, or, you know, that, you know, there’s, there’s some other factor in your personal life that would, you know, would naturally cause you concern about a particular product or situation. You know, I think, in the advice context, that, you know, part of that robust process, and objective consideration has got to be the process of going through the fact find, of documenting of, you know, of making the recommendation of drawing it out, and the SOA, and I would really strongly recommend not just sort of lapsing on to, you know, into using the standard text, and, you know, going with the vibe, but, you know, most importantly, the better you can understand that person and what their, you know, their situation that their needs and their dreams are. And the better you can communicate with them, the reasons why you think a product would or wouldn’t make sense for them, the less likely it is that the expectations will be mismatched to the outcome, and the less likely it is that they’ll make a complaint eventually.

Fraser Jack
Yeah, so really understand that why, you know, the, and being able to communicate why that belief in the advisor is that this particular product is going to suit their circumstances.

Natalie Cameron
That’s it. So you know, recognizing your own biases, and, most importantly, understanding your client in look, probably nobody understands people better than advisors. And I think, I mean, that that is the core skill, isn’t it, identifying people’s needs and in once and, and helping them to come out with a better outcome than they had before the advice was given?

Fraser Jack
Yep. It’s, I think a lot of people are struggling, a lot of advisors struggling with this philosophy piece, at the moment being it bearing in mind that their new products, they’re still getting the head around a lot of how the new products are going to react and behave. In certain circumstances, in a lot of situations, it’s going to be a huge trade off. Because what, you know, there might be four or five different factors involved in the decision making process around, and then one company’s good without others. And it’s, I think it’s a, it’s an interesting moment in time, as we go through that. But I think, you know, I really like to try and encourage advice to have that philosophy or understand why they’re making decisions and to be able to communicate them.

Natalie Cameron
Yeah, I mean, it’s going to be tough. I mean, I, I’m going to guess that it’s going to be hard the first couple of times, and then it’ll be something to master and become expert in you know, those, those new products, when they suit and when they don’t, and how to best communicate those new products to clients and then also, certainly to make sure that your documentation is nice and clear. And you know, file notes have conversations and also in the in the advice courts.

Fraser Jack
Wonderful. Thanks, Natalie, for coming on, we look forward to catching you in the next episode.

Natalie Cameron
Wonderful to be here. Thanks, Fraser.

Fraser Jack
Welcome back. Ben Martin.

Benjamin Martin
Thank you, Fraser Jack.

Fraser Jack
No problem. Thank you for coming along. We’re talking about insurance philosophy. We’re getting into the nitty gritty of advisors really getting into looking at how they talk to their clients understanding how they choose particular products. Tell us about what you’re seeing in the space.

Benjamin Martin
Oh, look, it’s a it’s a it’s a complex one. At the moment, Fraser, different practices and different advisors have their own individual perspective and philosophy when it comes to risk advice. If we bring it back to first principles, though, at this juncture, where we’re faced with significant variation, you know, what a lot of advisors that we’re talking to will begin with is the products that we’re looking at. Fundamentally, we want to ensure that they are liberated from the pricing pressures of the past. Alright. And I think that’s an appropriate starting point, because we don’t want to be having the same discussion we’re having today, five years down the track, Fraser, we want to go to the root cause, let’s go to the root cause and address why we’re having this problem in the first place and ensure we don’t have a repeat of those out of cycle ad hoc rate rises. Once we start off on first principles from a philosophy from a philosophy, philosophy perspective, I can then identify okay, then which of my products that I’m looking at, had been built within the spirit of these APRA measures? So once we’ve once we’ve made that determination from the outset, Fraser around which particular products I’m leaning towards, are they sustainable or not, that the next question that tends to emerge at that point in time is, to what extent do I want to provide coverage for my client through to age 65. Because if we look at our traditional IP contracts, they are typically written with a benefit period through to age 65, providing long term protection to the client in the event of a temporary illness or disablement. If we look across the if we if we look at the different offers available at the moment, we’ve got benefits that are capped at five years, we’ve got the ability to write a contract that provides a benefit period of only five years, we’ve got some that go right through to age 65, we’re hearing more and more that there’s that there’s that there’s tend to be a bit more of an appetite for a five year benefit period, when I’m structuring these income protection contracts. And that typically typically comes off the back of a, I think our advisors are learning more and more that statistically on average, within the retail income protection space. At least within the AIA we’re seeing on average around 85 to 90% of retail IP claims being paid and closed and wrapped up within a two year period. Okay, so in light of those statistics, it’s tending to provide a bit more support for a shorter benefit period, namely a five year benefit period, particularly if it means garnering some premium efficiencies for clients that might otherwise have tight or cashflow sensitivities within the family budget. So that’s one cohort, or that’s one school of thought when it comes to structuring these next generation income protection policies. On the other hand, we’ve got some advisors. And either way, they have valid and fair observations. But on the other hand, the other school of thought is that my client perhaps isn’t as sensitive to these cash flow constraints, perhaps there, they’ve got surplus cash flow, there’s free cash flow when they can afford it. But insert in some circumstances, we may not have those pressures within the family budget and a recommendation for a benefit period through to age 65 may indeed be warranted, particularly if the client can afford to pay the extra premium associated with a benefit period through to age 65. So there are two kinds of starting points and schools of thought when it comes to structuring these IP products. So statistics that statistics are starting to come into play, but also the use of lump sum contracts phrase up, because a lot of advisors that we’re speaking with, they get, and they understand that nine out of 10 claimants, on average, coming off claim within the two year period that we know and advise and understand and indeed, many advisors probably have clients on the book at the moment that had been on an IP claim for longer than two years. So to cater for those outlier clients or for those more enduring or permanent illnesses. We’re starting to find a bit more of an appetite for the use of the lump sum TPD contracts as your second line of defense within the clients wealth protection plan that can provide that injection of capital into the client’s balance sheet. Should the temporary illness evolve into more of a permanent disablement, particularly off the back of a mental health, or a muscular skeletal type of disease or illness that might be prevailing at that point in time. So, two points there, a five year benefit, whether it’s a five year benefit period or a to age 65 benefit period that’s being contemplated within these new constructs, we’re finding more of an appetite for the use of a lump sum TPD contract to do some of that heavy lifting, and to cater for those outlier clients and might be suffering from from a more permanent or enduring illness. Now, if I could also add Fraser, before I lose my train of thought, is that typically we know, an advisor when they’re writing an IP contract or recommending an IP contract for a client, they’ll usually bundle in the lump sum cover whether that’s life TPD ends, perhaps some crisis slash trauma cover, especially if the needs analysis has identified significant levels of non deductible debt on the balance sheet that needs protecting. Right? So advisors are already doing this, we’re finding, it’s just that we might need to apply a little bit more rigor over what that sum insured is on the TPD and life component, especially if we’re relying on that as a second line of defense to supplements the monthly benefit that’s payable under one of these new IP contracts.

Fraser Jack
Yep. Now, thank you for that I was gonna mention with the affordability piece, um, there’s obviously that that are the hardest part that, you know, when people can least afford the insurances when they most needed and when they can most afford the insurances when they probably at least the least needed. But also, I’ve spoken here previously about just some of the leading causes of claims. And when it comes to setting up your insurance philosophy, to be really thinking heavily around, you know, what are the main causes that you know, as a cancer has mental health, as you mentioned before, muscular, muscular, skeletal, those sorts of things, and what are the impacts of those particular conditions on the consumer or the clients life and therefore looking at that as, as something that’s really important to within the insurance philosophy,

Benjamin Martin
it’s absolutely crucial, because when you think about it, right, and you look at the new IP products, you can no longer generally can’t build any used to be able to get something called crisis built in crisis recovery benefit in the old IP contracts, and pay like a six month multiple of the monthly insured benefit off the back of our prescribed illness or condition, we can no longer build that ancillary benefit, generally speaking into these new contracts. So under best interest duty, if I’m sitting across the table, and I’m providing advice to a client, that’s perhaps 40 Plus, in the 40 plus age cohort, we know that those clients statistically, are at risk of suffering from those prescribed chronic illnesses. So under best interest duty, at least for me, it’s absolutely imperative that we’re looking and contemplating the use of our standalone comprehensive crisis, last crisis recovery slash trauma plan, right? Because when you think about it, if for that 40 plus year old clients, if the if the reason for the temporary illness is cancer, a stroke, or one of those pre prescribed chronic illnesses, and to the extent that we’ve got a comprehensive standalone crisis recovery plan, bundled in with the IP contract, then all of a sudden, we’ve created this separate funding mechanism that can pump capital into the client’s balance sheet which can be used as a supplementary income stream, and to meet the costs. Those exorbitant costs are typically associated with those chronic illnesses, especially in the first few months following the occurrence of that illness or injury.

Fraser Jack
Yet, you’re absolutely right about looking at the looking at that philosophy in a hole, not just product by product.

Benjamin Martin
And I’ll also add Fraser, if I may, though, when we talk to advisors about the use of you know, lump sum TPA contracts, to cater for those outlier clients that might remain on claim longer than two years. Another strategy or another tactical play that’s worth bearing in mind in this new world is the use of what we call two plus two dual income protection play. Alright, so what we’re what we’re, what we’re talking about there is imagine you’ve got two retail IP contracts. Alright, on the one hand, the first retail IP contract has a 30 day wait with a two year benefit period. Now under the existing settings, generally that’s going to get you 70% of replacement income for the first two years and ended and the definition of total or partial disablement is also looking at whether you are on unable to perform the duties of your own occupation. So you’ve effectively got an IP own occupation contract for the for the first two years on claim, paying out and replacing 70% of the clients pre disablement income. Now, some contracts currently in the market, then have inbuilt controls that have the effect of reducing the replacement income after the two year mark from 70% to 60%. And also have the effect of changing the definition of disablement from IP own och to an IP any or suited occupation definition. Now, one way to to counter the effect of those controls, is by layering that layering that initial 30 Day waits to 30 day weigh to your benefit contract with another retail IP contract that has a two year waiting period and a benefit period through to age 65. Now, if you structure it effectively with to next generation and you can get this with the AIA offer. So what we’re contemplating here are two AIA AIP contracts, right, you’ve effectively got an opportunity there to provide four years of IP own occupation, total disablement and partial disablement definition, and four years of 70% of replacement income for the clients. Now, a lot of clients sorry, a lot of advisors have been receptive to that idea, Fraser in principle, because from a best interest duty perspective, we’re providing the clients with a little bit of extra breathing space to cater for those more enduring illnesses, those outlier clients that we tend to see that might remain on claim for longer than your average 24 months.

Fraser Jack
Yeah, well, fantastic. Ben, thank you so much for coming on this particular episode. I know this is a absolute passion of yours and so you can talk about it all day long. We look forward to catching you in the next episode when we’re talking about where to from here.

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