Fixing the "Broken" Business Model

It would appear that the penny is finally beginning to drop with the management of Life Insurance Companies, that all is not well with the way they sell their products. In the past 10 days we have seen Irish Life attempt to undo the unprofitable practice of changing Term Insurance product providers every so often, and the Sales & Marketing Director of Friends First calling for reform of the ‘sales model’, under Government supervision.

To be honest, the Irish Life action does not go far enough and the comments from Friends First smack of desperation. Why would a Life Insurer need Government input on changing the way it sells its products? If the sales model is messed up, surely it is up to the product providers to reform the model that they are complicit in facilitating; unless, of course, there is a fear of offending a certain distribution channel and they want to be able to put the onus of change on Government.

If Life & Pension Companies are serious about reforming their industry then they need to consider the following :

● The interest of the consumer should be put to the top of their agenda
● Accept that Financial Advisors should work in the interest of their clients, not product providers
● Different pricing/remuneration for different distribution channels does not add up
● Products with 20 to 30 different commission options are not designed with the end consumer in mind
● Simplifying product charging structures so that there are [at most] two types of charges on a product
● Charging 1%pa to ‘manage’ a Cash/Deposit Fund is a rip-off
● Create an external fund, with input from the NCA and Financial Regulator, to pay for the Education of consumers on financial products/issues so that the public perception of bad value is negated
● Stop telling the market that Term Insurance is not profitable and then keep reducing your rates
● If you continue to deny reform you are leaving the door open for niche players to chip away at your book of business.There’s obviously enough 'fat' on the product for others to offer same products (more efficiently) and profitably
● Measuring the company’s success, and rewarding management and sales staff, by dubious ‘new’ business figures is all going to end in tears
● The notion that chasing the large corporate broker to fulfill your hunger for‘new’ business is folly. Treat every intermediary the same ie no special treatment.
● Devising a business plan that extends beyond 1 year
● Be more flexible in their approach to intermediaries who want to offer low-cost versions of their products and stop hiding behind the 'fear of offending your supporting brokers' line. If I want to sell it at a lower cost, by reducing my margin, so bloody what?
● Ban rebates on Term Insurance as it does nothing for retention of business. Instead,allow the intermediary to offset saving so that cost of product is reduced to consumer
● You would love for someone else to ‘impose’ fee based advice only but it’s not the solution to your woes
● Have a serious look at service issues to lower your costs as the amount of duplication is remarkable.

These issues should have been attended to before now. It is ironic that Life & Pension Companies are now ‘forcing’ the issue because it’s not working out the way they planned it. If I were a shareholder of any of these companies I would be very disappointed that they have let it go this far.

Criminal Justice (Money Laundering and Terrorist Financing) Act 2010

The above act comes into effect on the 15th July 2010. Life Assurance Companies and Financial Advisors are deemed to be ‘designated persons’ under the Act, so that means that they have procedural obligations to comply with. The bulk of the new changes that apply will be in relation to Single Premium Investments (Bonds).

Up to now ‘Customer Due Diligence’ was carried out by the Financial Advisor in the form of a Certificate of Identification. He/She held this documentation for identifying the client on file, but there was no requirement to send it to the Life Assurance Company unless it was requested by them.

From today, certified copies the identification documents will have to be sent to the Life Assurer and they will also have to satisfy themselves under the headings of ‘Sources of Wealth and Funds’. These should be incorporated into the proposal form along the basis of ‘how the money was acquired’ and ‘what is the combined income of the applicants’. Details of your ‘Occupation’ were not a requirement prior to today but this has also been included at proposal stage.