Risky business: newcomers to risk writing

The pressure to provide ‘holistic’ client service is rising, the Financial Services Reform Act is placing more obligations on planners, and life companies are targeting the financial planning market as the premium growth area. As a result, many traditional investment-based planners are starting to include insurance advice in their offering.

Zurichhead of life risk Chris Kirby says the biggest issue for financial planners embracing risk advice is coming to terms with the inherent differences between the two industries.

“The single biggest issue we face is that, fundamentally, the difference between the investment business and the insurance business is so great. And the one defining difference is this concept called underwriting,” he says.

As a result, Kirby says planners entering the insurance ring will have to undergo a ‘re-learning process’.

“The day-to-day issue is that writing insurance business is a labour intensive process, and it’s not a guaranteed sale,” Kirby says. “Unlike investments, it’s not a transaction-based process, it’s an assessment-based process.”

According to Kirby, understanding a client’s need for insurance and going through the recommendation process is just the tip of the iceberg. The vital step is actually steering that business through a matrix of issues to completion, and where inexperienced planners may fall down.

Planners new to risk writing will need to allow time for trial and error, as Kirby says being a proficient and successful risk adviser is, to a large extent, experience driven.

“A good insurance adviser will know from past experience when problems are going to pop up and what to do in order to avoid them,” Kirby says.

“But the more you do it, the less surprises you come across.”

Total Financial Solutionsdirector Kevin Owen is one man not easily surprised after 20 years in the risk industry. Over the past six years, however, Owen has also grown his business to include financial planning, and believes the financial planning industry has failed to equip planners with the skill required to sell risk.

“I know a lot of financial planners who are up to speed with the training requirements on risk and are now trying to sell it, but that’s where the financial planning industry has fallen down. They have been quite negligent in not giving selling-based training,” Owen says.

“With risk insurance people aren’t exactly knocking your door down… you’ve got to sell it, so you’ve got to have the skill. Financial planners who are not doing risk are deficient in that skill, and that’s where they’ve got to get themselves up to speed.”

Fact-finding is another skill traditional financial planners may have to refine, according to Laing Advisory Services principal Sue Laing.

When it comes to the risk side, Laing says questioning techniques may be more intense and are definitely more emotionally based than those for investment, and may need to be learned. Financial planners who fail to adapt their existing question sets in the fact-finding stages may not uncover the level of information needed to do the job well.

Another danger area is planners heading into risk without the office support needed to incorporate the change to their business.

“The new business processing and underwriting, which is inherent in risk business, demands a method of reliable follow-up and management,” Laing says.

According to Laing, should a client make a claim while undergoing underwriting, advisers can be vulnerable if communications have not been managed in a timely manner. This means file notes are essential.

So while these concerns may leave traditional financial planners (and their clients) feeling a little hot under the collar, Kirby maintains the bigger evil is not making any recommendation at all.

“Financial planners have been reluctant to write risk insurance because there’s a myriad of different life companies out there offering multiple versions of various insurance products. The message we’re giving to planners is that life products are really hard to understand.”

The effect is that planners are being paralysed by choice, and ultimately the fear of making the wrong one. But while life companies will insist their suite of products differ greatly from others in the market, according to Kirby, it is only the exceptional situation that a particular product will be at fault for a failed claim.

“The exceptional case is that there is going to be a problem with the product — the bigger issue is going to be that you haven’t made the recommendation,” Kirby says.

“We’ve got plenty of work to do as life companies to attract more financial planners to our side of the business. Maybe we’ve got to re-engineer some of our processes, particularly around underwriting and even maybe our product, to make it that much easier to do business.”