Risky Regulation

or

Regulation Rewards?

Risk Masterclass 2011

AGENDA: 2 distinct concepts;Risk IN Advice, &, Rewards FROM

RiskFit for Purpose?

Personal Responsibility

Third party research

Why is this appropriate?

Your analysis? Their needs?

Key checkpoints

New Rewards?Changing market demands

New opportunities

Manage client expectations

Best practice = $...but…

Have to think differently…

Risk IN Advice

FAA & Church case highlight responsibility issues

3rd Party research a defence? (Delmenico v Brannelly & Anor;

2008) (FOS Determination 18959; 2009) (Aust)

Key regulatory test: “why is this advice appropriate?”

Identifying client needs is importantPrioritizing client needs is essentialDetermining “most likely” right solution is the art

Working Example: some DI options

Scenario 1:

Salaried (PAYE) Manager earning $90,000 gross breaks his legs in a ski accident.He is unable to work at all for three months, then returns to work at one-third capacity (and pay) for a further 3 months, before returning to work in full capacity.Pre-disability Income $90,000ACC Benefits $72,000

Disclaimer!

Who Pays What Monthly Benefit? (with ACC Paying $6,000/mth)

Totally Disabled (first 3 months)

Fidelity Indemnity $5,625Fidelity Agreed Value $4,125AXA Indemnity $0AXA Agreed Value $0Asteron Indemnity $0Asteron Los of Earnings $0

WHY? Fidelity “Specific Injury Benefit”with no offset aims at this type of claim.

Partially Disabled

•Fidelity Indemnity $3,125•Asteron Indemnity $1,000•Asteron LOE $750•Fidelity Agreed Value $125•AXA Indemnity $0•AXA Agreed Value $0

WHY? Fidelity Indemnity has AV wording for first 6 mths of claim.

Change the scenario though…

Scenario 2:

The same Salaried (PAYE) Manager earning $90,000 gross had a heart attack.He is unable to work at all for three months, then returns to work at one-third capacity (and pay) for a further 3 months, before returning to work in full capacity.Pre-disability Income $90,000ACC Benefits $0

Who Pays What Monthly Benefit? (with NO ACC Payments, but $2,500/m personal earnings)

Totally Disabled (first 3 months)

AXA Indemnity $5,625Asteron Indemnity $5,625Asteron Loss of Earnings $5,625AXA Agreed Value $4,125Fidelity Indemnity $5,625Fidelity Agreed Value $4,125

WHY have AXA moved to top place?Specified Sickness turns it into a 6 month claim, regardless….

Partially Disabled

•AXA Indemnity $5,625•AXA Agreed Value $4,125•Asteron LOE $3,750•Asteron Indemnity $3,750•Fidelity Indemnity $3,125•Fidelity Agreed Value $1,625

Elimination, not “selection”

Client situationClient PrioritiesBiggest risks?Strategy – AV, Ind, LOE, Hybrid3rd Party researchSupplier analysis (subjective)Portfolio “fit”Policy Features

Key definitions:– Total disability– Partial disability– Advance/arrears

payment– Sabbaticals– Reinstatements– Other Income– Offsets– Insurable income– Tax position clause

A thought on Income Protection….

Agreed Value is not assessable/deductible?HISTORY: early 90’s companies sought Binding Rulings on specific products as they were new to NZ market. Rulings were product specific.BINDING RULINGS: are for a specified period, and only binding for that time. Those early binding rulings have all expired.Besides, a Binding Ruling can be withdrawn at any time.Understand that the current IRD treatment on Agreed Value is standing policy…not law, not binding, and subject to changeConclusion: it is easier for IRD to change the rules than for a client to change policies.Consequence: think A.V recommendations through carefully and review frequently. Be prepared to change positions.

Rewards FROM Risk

Consider a client engagement as a project with 3 distinct components:

1. Planning

2. Implementation

1. Monitoring & Servicing

How we work…

PLAN

PLAN IMPLEMENTATION

How we work…

PLAN IMPLEMENTATION MONITORING

How we work…

PLAN IMPLEMENTATION MONITORING

$(Fee)

How we work…

PLAN IMPLEMENTATION MONITORING

$(Fee)

The Client

can stop here

How we work…

PLAN IMPLEMENTATION MONITORING

$(Fee)

$Commission and/or

Fee Agreement

The Client

can stop here

How we work…

PLAN IMPLEMENTATION MONITORING

$(Fee)

The Client

can stop here

The Client

can stop here

How we work…

$Commission and/or

Fee Agreement

PLAN IMPLEMENTATION MONITORING

$(Fee)

$Renewal

Commission +/- ?

The Client

can stop here

The Client

can stop here

$Commission and/or

Fee Agreement

The Project with client choices

When implementing change….

EFFORT

little

late

TIMING

EFFORT huge

little

late

TIMING

EFFORT huge

little

late

early

TIMING

EFFORT huge

little

late

early

TIMING

Final Thought…“The Artistic Calling”

Professionala. Pertaining to a profession or calling; engaged in a

profession; engaged in an artistic calling as a means of livelihood

Professionalismn. The principles of professional persons

For further information or consultation: