Insurance master trusts on the agenda

Financial planning groups are lining up to launch their own risk insurance master trusts.

A number of dealer groups are on the verge of offering risk master trusts and analysts expect the first to be rolled out within weeks.

Like an investment master trust, financial planners can select from a number of different products in the master trust. The dealer group will run the software, buy the wholesale insurance product from the insurer and sell it.

In this way, explains consultant Michael Harrison who is advising Zurich, dealers make the profit instead of the insurance company.

"They buy wholesale and sell retail," Harrison says.

Harrison would not be drawn on details but confirms that Zurich is looking at the viability of such an insurance master trust arrangement for a dealer group.

"There is no major difference between an investment master trust and insurance master trust. The concept and mechanisms are the same, only the underlying product differs," Harrison says.

He cites three advantages that make risk master trusts attractive - the dealer group controls the customer base; they can probably reduce underwriting requirements, especially for large groups; and they can buy wholesale.

"A big gripe from dealers is that they put clients in master trusts but do not make the money. The master trust does. Many dealers feel the investment master trusts do not give them the payback they deserve," Harrison says.

Harrison adds that financial planners are not usually experts in risk.

"It is easier for them to place the business through a risk master trust," he says.

Earlier this year, Associated Planners came up with what it believed to be the first wrap account style system for life insurance products.

The Solar risk service offers a suite of risk products sourced from a small number of manufacturers all housed in an administration system supplied by Integrated Process Solutions (IPS). Associated's 130 planners can choose term, trauma and total and permanent disability (TPD) products from AXA and Citicorp.

The intention is to extend the range of products to be housed under the Solar system. Next to come, says Associated Planners' managing director Ray Miles, will be income protection.

Despite problems getting superannuation on stream, Miles is happy with the progress made so far.

"It has gone well. In the first six months we have written over $1.2 million in premium income. It is a great concept for clients and advisers."

The system allows clients to switch from one provider to another without incurring a cost, however the service has been designed to discourage churning of clients from one product to another. The Solar system pays advisers a level brokerage of 25 per cent.

ACCOMPANYING BOX - MASTER TRUSTS

THIS IS DRAWN FROM MY OTHER PIECE ON MASTER TRUSTS

Master trusts - a trust arrangement which allows a single trustee, operating under an umbrella trust deed, to administer and manage superannuation funds - started in the early 1960s when life insurance companies began to grapple with the administrative task of setting up individual trust deeds for separate superannuation accounts. Their solution was to roll all accounts under the one "master" trust deed.

In the mid-80s the same concept was conceived for retail investors who, now provided with administration vehicles, could invest rollover superannuation money, set up a personal super fund and even invest their non-super money.

Master trusts became convenient administrative tools for allocated pension funds.