Almost two years ago,Money Managementreported that financial planning groups were lining up to launch their own risk insurance master trusts.
At the time, Zurich was considering an insurance master trust arrangement for a dealer group and Associated Planners had just launched its risk master trust product, SOLAR.
It was predicted that this could be the start of a complete revolution in the way the insurance industry markets its products to the financial planning industry, and in turn, to investors.
However, all went quiet on the risk master trust front, until last week that is, with the news that Professional Investment Services (PIS) is now looking to launch a risk master trust and is actively speaking to insurance providers such as Royal SunAlliance about its product.
The concept and appeal of risk master trusts is quite simple. Similar to an investment master trust, a risk master trust provides clients with a menu of insurance providers.
Rather than allowing clients to diversify their investments, the menu of insurance providers offers clients the opportunity to change their insurance group when their life circumstances change.
Risk master trusts therefore offer clients greater flexibility while providing dealer groups with access to a wholesale product, provide greater control over the customer base, while also reducing underwriting requirements, particularly for larger groups.
So many saw risk master trusts as a win-win situation for both advisers and clients, with the general view that insurance groups would eventually warm to the idea.
However, two years on, not only has Associated Planners remained the only financial planning group in the industry to actually launch a risk master trust, it has reported “slow progress” in making the product a success.
“It was never going to be easy. I don’t know why anyone sees it as the Holy Grail. It’s not,” Associated Planners managing director Ray Miles says.
While SOLAR has $5 million funds under management, Miles admits the product is currently losing money.
He says the main challenges have been an overall industry resistance to go down this path, the fact that not enough insurance carriers have listed their products on the master trust, and the desire of life companies to keep their retail margins.
While Associated Planners began developing a product two years before anyone else, Miles says he cannot understand why any group would want to get involved in risk master trusts at this stage of their development.
“I can’t imagine why anyone would bother. We are so far down the track, we can’t get out,” he says.
Miles says Associated Planners first got involved in developing a risk master trust because it saw it is an inevitable development for the industry that the market would end up selling insurance at wholesale rates. Further, having clients in their own master trust effectively keeps them out of the clutches of other marketing groups.
He says while insurance groups were all keen at the outset to participate, only two have listed on the product. Miles says SOLAR needs six carriers to make it profitable.
The product also needs the backing of one of the big players in the insurance industry — an AMP, Commonwealth, Norwich or Royal SunAlliance. Miles says while the risk master trust concept is good, the support of one of these groups does give the product market credibility.
The news of PIS’ work on risk master trusts and the admission by Miles that it is experiencing trying times withSolar, has sparked the debate again on the future of risk master trusts in Australia.
According to Grahame Evans, managing director of Professional Accountants Limited (PAL), the PIS-owned accountancy consolidator group, while there is no guarantee that such a product will work in the Australian market, there is a market need for such a product.
“At the moment, you can’t move from one insurance group to another. So when you get sick, you’re stuck with them come hell or high water,” Evans says.
However, the group is still unsure how to address key issues of a risk master trust, including the real risks in moving from one product to another, how to cost these risks, and whether the end result is more costly to the product user.
Royal SunAlliance (RSA) general manager of life risk Sean Carroll says while it has talked to Associated Planners in the past and is now in talks with PIS over its risk master trust, he does not consider these products the way of the future.
“There is not enough balance of stakeholder interests at this stage. They [risk master trusts] are not actually a necessity and they are not necessarily adding a lot of momentum,” he says.
Carroll says while launching a risk master trust makes sense for dealer groups so they can “control some revenue”, it means that insurance groups must hand over control of their products to another manufacturer.
“We don’t need to diversify. It [a risk master trust] dilutes our proposition because it potentially spreads our client base,” he says.
Carroll says if all major broker groups were to go down this path and it was the only way to sell their products, then RSA would be happy to join a risk master trust.
MLC general manager of marketing insurance Michael Browne says he is not surprised the industry has not moved significantly forward on the risk master trust front.
“They [risk master trusts] radically change business models and so people tend to either see it as an opportunity or threat,” he says.
MLC made its own attempt to launch a risk master trust almost four years ago. Called the Gateway project, Browne says MLC believed there was an opportunity in the market for single fund managers to list their products on master trusts and access distribution.
“We believed the same could be done with insurance,” he says.
Browne says at this time, there was a big move towards providing consumers with more choice, as well as difficulties for planners in creating a total client protection portfolio, which could involve at least three underwriters.
However, the project began to sour when it came time to sign up insurance groups to the product.
“They were keen to learn about the concept. But it meant relinquishing their relationship with distribution and potential customers, and they weren’t prepared to do that,” Browne says.
He says part of the problem was also the timing of the project. At the time, the insurance industry was predominantly dealing with profitability and claims issues, and was more internally focused as a result.
Going forward, Browne questions whether the insurance market is big enough to handle a risk master trust. And, while Browne says MLC is still supportive of the concept, he believes a successful risk master trust model has not been realised anywhere in the world.
