It’s getting nearer to crunch time as the door starts to close on advisers yet to make a decision on their future in the industry, says Chatswood Consulting’s MD Russell Hutchinson.
He says a long-awaited realignment is in progress, and that while it may be hard to be grateful, this change presents opportunities – for some.
“There is no need to describe in detail the near-perfect storm of conditions that insurers and financial advice providers find themselves in at this time,” says Hutchinson.
“The combined effect of revenue pressures and cost pressures associated with the implementation of new law, conduct reviews by the regulator, and the prospect of still more change is extensive.
“It would be complete only if there were also large negatives in investments and returns and an economic recession to deal with.”
Hutchinson says, COVID-19 completes the picture of misery.
However, he believes there are reasons to be optimistic:
- Those that have long desired the arrival of the switch to better systems, befitting our digital age are frustrated that spending decisions were often shaped by the remuneration marketplace
- Adviser business with a strong focus on good customer outcomes and evidence-based advice were competing at some disadvantage with a small group that took full advantage of the light-handed approach to advice regulation
- Consumers that sought the convenience of direct online purchases often found a lack of the options enjoyed – for example – in the UK, US, South Africa, and Australia as our direct market was dominated by non-underwritten contracts
To have such opportunities allows us to imagine a future in which the sector is more efficient, forward-looking and optimistic…
“To have such opportunities allows us to imagine a future in which the sector is more efficient, forward-looking and optimistic,” says Hutchinson.
“Now is when we will finally address some of these issues.”
Looking at the next five years he says the leading themes will be:
- New digital systems for underwriting, claims, service, sales, advice, reviews and suitability assessment.
- Multi-sales channels, multi-service channels for customers, and more options to suit our more diverse customers – enabling insurance to reach out to more non-homeowners and the more than 38% of Auckland households that are neither single people nor married couples.
- Efficiency – comparison shows our insurance market is expensive. That it also has numerous uneconomic and rarely used products that are clunky or manual systems is no coincidence.
Australia
Hutchinson is concerned about what he says are a considerable number of advisers in Australia exiting the industry before they are required to sit the FASEA exam, and before the new educational standards need to be met in 2024.
“Those advisers that are selling their paper-based small risk books are being met with reduced interest; these books are going for 1.5 times, to two times,” he says.
…considerable number of advisers in Australia exiting the industry before they are required to sit the FASEA exam…
“Well organised businesses with ongoing referral relationships, and good technology, are going for 2.5 to three times. With the increasing number of advisers leaving the industry, it is expected to reduce in the coming months.”
He says advisers running smaller adviser businesses, who are looking to stay, are considering merging with other small adviser businesses.
“Meanwhile a number of advisers are adopting a holistic style of advice, as a result of their reduced earning capacities from risk,” says Hutchinson.
“This shift has caused significant drops in new business being written with all the insurers, with an insurer representative stating a 40% drop.
“The removal of agreed value policies comes into play from April 1 2020. It has been suggested that advisers feel this will lead to worse consumer outcomes, with the chance of less insurance being written.”