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‘Brokers’ note: Your clients want to buy risk cover’

05 July 2021 Gareth Stokes
Kobus Kleyn, CFP® at Kainos Wealth

Kobus Kleyn, CFP® at Kainos Wealth

The real-world experiences of clients and financial advisers are not always aligned to the advertising and promises made by the country’s leading financial services brands. This writer endured more than a few hiccups during the extended Covid-19 lockdown… Issues crept in despite countless reports (in fact I wrote a few articles myself) in which executives at asset managers, banks and insurers claimed: “everything was going swimmingly”. Banks are legend for underperforming in all matter’s customer service; but we were surprised at the shoddy service we received from a leading life insurer too. Both our direct approach via the brand’s website and subsequent digital interactions with a broker left us uninspired and uninsured.

Rethinking tried-and-tested processes

The challenging operating environment created by South Africa’s national lockdown forced financial product providers and their distribution partners to think differently about tried-and-tested processes. They had to figure out how to maintain customer and distribution service levels while relocating the bulk of their work forces from the office to the home, in record time. It appears that most companies achieved this relocation and remote working feat without much incident. The problem is that remote workers were, and still are, administering and selling insurance products that were designed for the old normal, a world where physical interaction was necessary to complete many administration, claims and underwriting functions. 

We had an informal chat with financial planner, Kobus Kleyn, CFP® at Kainos Wealth, to explore some of the challenges and opportunities that life insurers and financial advisers face in the new normal. Kleyn’s views reflected discussions he has had with many categories of adviser and a variety of FSPs within the advice profession over the past months. We talked about insurers’ performance through pandemic and whether the current product landscape was suited to the market’s evolving needs, among other issues. 

An early insight was that pandemic has forever changed the risk protection dynamic. Kleyn pointed out that clients were more aware of the need for death cover, dread disease or severe illness cover, permanent and temporary disability cover, and even funeral cover than before. There is a growing realisation among consumers that Covid-19 has severe short-term and long-term financial and health consequences, and that they may not be as indestructible as they previously thought.  

For the first time ever, clients want to buy insurance

“Risk insurance, and life cover specifically, was always seen as a grudge purchase; but suddenly we find ourselves in an environment where people are consciously thinking about getting death, disability or dread disease cover,” said Kleyn. Although unfortunate, the pandemic can be seen as a trigger event for financial advisers and product providers to work towards narrowing South Africa’s R34.7 trillion risk protection gap, per the 2019 ASISA Life and Disability Insurance Gap Study. Financial advisers should be encouraged by the dual-positives of a virtually insurmountable insurance gap and the emerging consumer awareness of the need for risk protection. The question is whether product providers are offering the right products for advisers to sell into the new normal market. 

“We have sufficient products, but the industry has an oversupply of products that are too complex and too technical for the man in the street to get to grips with,” said Kleyn. Overly complex benefits design and the myriad ancillary benefits make it difficult for financial advisers, especially during the advice or sales stage, to relate with clients. The argument for a simple ‘single risk benefit’ product gains traction when you consider the additional resources required to service a complex product environment, such as adviser and call centre training and extra time to explain the product to the client … not to mention the impact of complexity on ‘closing’ advice with the implementation of products. Kleyn said that it was long overdue that associations and product providers in the life sector focused on simplifying processes and products rather than obsessing over actuarially-focused technical specifications and associated risk. 

Just give me a Coke, dammit!

Ironically, much of the current product complexity stems from product providers trying to get an edge over their competitors, with each adding more bells and whistles to the core product. Marketing seems to have overtaken consumer needs in the product design discussion. Why else offer dozens of product enhancements, each requiring a degree to understand, when only a handful of these options are ever used? Instead of selling a 2 litre Coca Cola, we are offering a 330ml bottle with a 670ml top-up if the temperature fixes at 33C for more than a week; a super-sipper option with multiple access points for double- or triple-thirst events; and a bubble diffuser to limit excess gas on fast disposal… All the client wanted was a Coke! 

Kleyn summed up the situation succinctly: “Insurers are not only competing by adding unnecessary bells and whistles, but are also deflecting attention from the product’s intended performance by incorporating lifestyle / loyalty programmes and other value-adds; the result is that both adviser and client are unable to fully understand the offering”. FAnews posed a tough question: Do you think that insurers are stuck in the mindset of creating the most desirable product rather than finding more efficient channels to market? “Insurers do not appear to have the flexible, disruptive attitude needed to ‘pivot’ a product quickly enough through something like the Covid-19 pandemic,” said Kleyn. 

Financial planners are not saying that insurers ceased operating during the lockdown, most adjusted to ‘work from home’ quickly enough; but rather that product providers failed to recognise the need for more flexible, more straightforward products to meet changing consumer demands. Kleyn also highlighted many bottle-necks that were created by staff having to work from an ‘out of the office’ environment. He felt that FSPs could have addressed many of these issues more efficiently, though he conceded that the pandemic environment had not made things easy for them.  How then, we wondered, could so many insurers claim “business as usual” through 2020 and the first half of 2021? 

Perception versus reality

“Perception has a nasty habit of becoming a reality,” concluded Kleyn. “Did insurers pivot during a pandemic? Yes. Are some still busy pivoting? Also, yes. Did they pivot quickly enough? Not quickly enough; but at least they tried their level best”. Kleyn mentioned that he was very impressed with the unconditional support to his practice and clients over the last 15 months and could not have asked for better support. And he extended a word of thanks to those insurers that did their utmost to support clients and financial advisers through the crisis, saying that the insurers who did best in this regard would see the reward in the persistency of their business over the next six to 18 months. 

Writer’s thoughts:
A key observation made during our discussion with Kobus Kleyn was that consumers are more inclined to seek out risk insurance cover than ever before. Do you agree with his observation? And do you believe that life insurers offer the right line-up of flexible, simple risk products to allow you to sell into this growing consumer demand? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].

Comments

Added by Gareth Stokes, 07 Jul 2021
Agree with your comment 100% @ Palesa. In my view, even the most sophisticated HNW client would be better served by a simple policy that covers life, disability, critical illness... I mean- what more does one really need?

To the layperson it appears that product providers have introduced exceptions and exclusions to what used to be simple cover, and then introduced complex product enhancements to bypass their exclusions.
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Added by Palesa Tlholoe, 06 Jul 2021
I couldn't agree more with Kobus, over 90% of our clients really just want and can only afford a simple life insurance with life, disability and critical illness if possible. If we want to close this huge insurance gap as the industry, we simply just need to stick to the basics. What a great read!
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Added by Gareth Stokes, 05 Jul 2021
Your observation resonates with many industry stakeholders, @Jace. I have heard many of the product providers admit that the spike in claims due to C19 caught them off-guard. In other words the slow claims resolution issues you are encountering may have occurred with or without the "work from home" factor.
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Added by Gareth Stokes, 05 Jul 2021
Thanks for your comment @Gustav. Yes, we were talking about a regular Coke... But your point taken, perhaps a sugar free option would have been better for the client! The issue raised here is at what point the level of choice becomes dangerous / inhibitive / unproductive. In other words, at what point does product complexity detract from rather than improve customer outcomes!
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Added by JACE NAIDOO, 05 Jul 2021
Whilst many insurers have accustomed themselves with the work from home scenario I have experienced unacceptable delays in claims. The pandemic MUST NOT be used as an excuse for non-delivery as advisors alike are committing themselves for promises made by product providers. This pandemic regrettably is here to stay for a while so all industry players need to show due diligence going forward.
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Added by Gustav Hauptfleisch, 05 Jul 2021
Mmmm. I was just wondering if the Coke was also sugar free! The analogy explains the issue of too may choices/options within a product.
Clients really need guidance but due to current conditions to try and explain these in an email or even zoom remains a challenge.
Enjoyed the article though.
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