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From square to circle, a small change but a big mind shift

27 March 2006 Angelo Coppola

24 launches later and Rex Thomlinson deputy CEO of Liberty Life is taking strain, as the company launched their new product and new look.

A coat of paint is not enough, and with this the team at Liberty Life started to restructure their product offering. This was driven by the spate of PFA rulings, the lack of a savings culture in South Africa and according to Thomlinson, a need to do the right thing.

Its almost a rebuild, as the PFA did his job and got the life industry to re-look at themselves.

The new product seems to form a part of the new look at the company. Their strap line runs along the lines of asking a simple question when developing products would you sell this product to your mother?

As a starting point and refreshingly so the company also announced that they wont sell savings products into the entry level market especially when they are wrapped in a life wrapper.

The 550 intermediaries whose business is affected werent happy. Thomlinson says that this sector of the market accounts for between 5% and 6%. In total they have in the region of 9000 brokers, intermediaries and salespeople moving their product.

According to Tomlinson the company decided to put its money where its mouth is, and will subsidize the loss that the 550 brokers operating in that market sector will suffer, provided that they keep up their call rates.

There are a couple of systems issues but Thomlinson did say that they are looking for a product to offer to that sector possibly a unit trust offering from Stanlib.

Stuart Wenman head of product development at Liberty says that generally people have a short term mindset to savings, thinking they can save with five year horizons, and generate enough long term savings for their retirement.

Heres a thought though on a R600 recurring premium (which is the average for Liberty clients - and among the highest in the industry) this doesnt mean much after charges and taxes and over a five year term will result in a 28% return on the initial value, as the compound effect wont kick in yet.

Turning back to the real issue that got the PFA hot under the collar early surrender penalties. Wenman confirmed that there is no penalty if the policy is surrendered after five years

As to what happens between contract signing and month 60? Well never more than 15% of the total amount of premiums paid at the date of surrender is deducted.

The policy holder pays R7200 in premiums in year one and decides to cancel in month 13. Well it turns out that they would be out of pocket by R7200 less the 15% in the first 30 months of the policys life. After that it drops by 0.5% building up to 0% in month 60.

It also appears that the commission structure is optional and to be decided by the advisor: As and when, Rolling five year, or Upfront and as and when. Does the client have a say?

Wenman says that brokers should be looking at transitioning their business. Liberty believes that there will be a degree of up-fronting, and some as-and-when commission. In terms of the recovery on the up-fronting there is a two year recovery period.

They will also offer the clients the option to switch to the new product from their existing policies. More details to follow later and according to Wenman they are still accessing the impact on their business.

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