Direct Versus Advised

www.quotemonster.co.nz

Comparing Effectively with Online Product Offers

March 2015

www.chatswood.co.nz

Learning Objectives• Familiarity with differences in:

o Application process

o Underwriting

o Pricing

o Product coverage

o Sales support – “no advice” and “class advice” versus “full personalised

advice”

• Ability to combine an understanding of these differences

www.chatswood.co.nz

Which “Direct” Offers Are We

Talking About?Please message any direct insurers you would like to list and discuss

Categories for discussion:

• Short-form, over-the-counter, no/low advice, limited plans

• Full underwriting process, advised, extensive plans

www.chatswood.co.nz

Direct InsurersBanks:

• ANZ, BNZ, Co-op Bank, Westpac and similar

Direct sellers:

• CIGNA, Pinnacle Life, Countdown Insurance

www.chatswood.co.nz

Media Focus: Price, Price, Price …The focus on comparison in the media is overwhelmingly on price- not

features

• 5 December article at Stuff.co.nz

• Consumer Magazine – recent reviews were price focused in Life,

general and medical, even ignoring financial stability which they once

included

• This suggests, implicitly that “all insurance is the same”

www.chatswood.co.nz

Sample Price ComparisonFrom ISI/FSC stats at Q3 2011, author interviews, and estimates, plus consulting

Actuary input.

Some direct offers can be

more expensive – such as

AA life. We don’t show that

data here, however,

Bank insurers usually at

the cheaper end of the

advised range

These direct insurers are

typically 5% to 10%

cheaper.

www.chatswood.co.nz

Media Focus: Claims

Stock correctly identifies some general issues with insurance underwriting:

• Insurers often wish to ask fewer questions

• Clients are not underwriters

• There are situations where the question of disclosure is complex and difficult

Rob’s example: he explains that the client: "...answered "No", when she had been

to the doctor's on a number of occasions, and she'd not "disclosed" the history of

cancer in her family.“

This may not be just about the form, but about the sales process. Problems with a

limited or no advice sales process include: no advice on replacement, limited

experience of underwriting, little industry knowledge or context, no advice on cover

amounts

www.chatswood.co.nz

The Coming of the Angry Policyholder

• There is evidence that customers are more sophisticated than media

• A UK customer advocacy group: “Angry Policyholders”, was established

because of the perception that the ‘any occupation’ and ‘activities of daily

living’ definitions for TPD and IP was unfair.

• They believe this definition should never be used.

• Many financial advisers agree.

• Obviously when quality differences are explained consumers do

understand.

www.chatswood.co.nz

Direct Versus Advised – Life

This is a life cover case is based on a female age 35 non-smoker.

What effect does commission have on the product selected? In this case

higher commission products correlate with higher quality of coverage

The lowest score for the product in the set we research is 92%, shared by

ANZ, BNZ, and AMP-RPP. The highest is 100%, held by Asteron, and most

intermediated companies score between 96% and 100%. Most direct to

consumer offers score between 92% and 94% with the exception of Westpac.

www.chatswood.co.nz

Countdown Insurance

Countdown is the latest company to enter

the insurance market, offering a range of

product underwritten by CIGNA. The range

includes:

• Bill Protection Insurance

• Pet Insurance

• Travel Insurance

• Life Insurance

• Accidental Death

This is a consumer-focused offer. Note the

prominence in the offer of bill protection

insurance, which is judged to have near-

universal appeal.

www.chatswood.co.nz

Sample Countdown Rate Comparison

Cover Amount Standard Premium Healthy Lifestyle

Premium

Sovereign

$100,000 $15.05 $13.17 $16.27

$200,000 $22.84 $19.99 $25.57

$250,000 $26.74 $23.40 $29.84

$300,000 $30.63 $26.80 $33.84

$500,000 $44.10 $38.59 $45.46

$750,000 $60.95 $53.33 $63.48

$1,000,000 $77.79 $68.07 $80.34

www.chatswood.co.nz

Exclusion Limitations“We will not pay any benefit under the Serious Illness Benefit if the claimed

condition is caused or contributed to, directly or indirectly, by:

• attempted suicide, intentional self-injury, whether sane or insane

• an unlawful act by you or the Life Insured

• alcohol or drugs taken by the Life Insured (unless prescribed and taken as

prescribed by a registered medical practitioner)

• driving a motor vehicle with a blood alcohol level in excess of the minimum

legal limit.”

www.chatswood.co.nz

Direct Versus Advised – Trauma

In the case of trauma the differences are more significant. The lower score

is just 52% of the best. In this case we used only the standard trauma

options – choosing not to add extra features such as early cancer and other

diagnosis benefits.

The lowest score for an intermediated product is 74%, but most sit in a

range between 85% and 100%. The highest score by a direct-to-consumer

company was Pinnacle Life at 77% with most in the range of 60% to 77%.

www.chatswood.co.nz

Summary

• Short-form underwriting is convenient but comes with risks. Those

risks can be amplified if the person helping with the sale is motivated

to coach or advise minimal disclosure

• Price can vary a lot – you need to compare – but the better half of

direct products will have a 5% to 10% price advantage over the

cheaper advised products. Some will be more expensive

• Product varies a great deal:

o Life cover will be similar but exclusions can be significant

o Trauma and Income Cover the differences can be very large and

customers do care – remember the “Angry Policyholders”

movement in the UK

www.chatswood.co.nz

Questions1. Name three direct insurers

2. What is the typical price difference between a well-priced direct offer

and a well-priced advised offer?

3. Give an example of an exclusion limitation

4. What is the product rating gap typical between a direct trauma product

and an advised trauma product

5. Name a problem with a limited or no-advice sales process

6. Name a problem with a full underwriting process

7. What is the name of the UK group advocating for better wordings?

www.chatswood.co.nz16

Thank You!

Visit us at www.quotemonster.co.nz

Connect with us on LinkedIn

Please remember that this material is

© Copyright – please use in your business but do

not distribute or re-sell