The New Normal for Income Protection #5 – Transcript

Fraser Jack
Hello, and welcome to this the final episode in our five part series on the new risk environment for income protection. As we settle in to the changes from IDI. I’m your host, Fraser jack, and in this episode, the panel discusses the future, the possibility and the opportunities as well as the unknown and the possible threats as October 2022 looms as a date for more changes, take out what our panel thinks the future holds in this space. Welcome back, everybody to this the final episode where we’re really starting to look at the future. where to from here? Obviously, that’s the golden question. Jeff, what are your thoughts?

Dr. Jeff Scott
I think that when we’re looking at old product versus new product, there will be some customers that will want to retain again, this is from the information that we’ve received from both financial advisors and clients MetLife we see from from across the nation, is that there’ll be some customers that will want to retain grandfather terms, benefits, options and features such as agreed value, such as specified injuries or trauma benefits, regardless of the cost. And it’s basically similar to what we saw with in threes mentioned this in a previous episode, the lifetime accident benefits on income protection in the past, there’s some clients that will hold on to those for dear life, no matter what. There’ll be other clients that will continue to pay their premiums until it reaches a particular threshold. And then we’re going to ask the advisor for more affordable alternatives. And the question is, when do you move these clients? So do you wait too long, and the customers health may have deteriorated? And when you apply for the policy, the client may have either loadings or exclusions or worse, they’re declined cover altogether. Or they basically do it now and say, Let’s get them across when you’re still fit and healthy. So I think that’s one of the things we’re starting to see from an income protection perspective, where advisors are now having to have some very tough conversations with their clients. So that they can actually sit down with the clients and say, Here’s where you are. Now. We know that with the fixed pool of clients who are now in the older products, that there’s not going to be any more new people coming in, and this pool is going to be getting getting older as time goes on. As they get older, they become more risky creams increase, do you still want to pay the premiums you are now and increase premiums in the future? Or if affordability is a key issue for you? Then when do we go across to the new product while you’re still relatively fit and healthy? So we can ensure that we have as few loadings, next few exclusions as you possibly can. So in other words, inclined to make an informed decision when certain things occur.

Fraser Jack
Yep. It’s a really interesting point, isn’t it? Because we know we know and Serena, obviously, you’ve all have seen this with books, when books close off, they become you know, more and more expensive. Yeah, as you know, and then the those healthy people then can leave the book or leave the pool, leaving the the ones that are unhealthy and or can’t move in there. And of course, their premiums just go up and up and up. And it’s it’s something that we’ve seen seen time and some of those older products.

Serena West
Yeah, it gets really difficult to manage and health is the trickiest variable, because we actually have no control over those things mean, as Cathy joked earlier, you know, clients do just ring up and say, Oh, by the way, I’ve just done this. And to them, it’s something inconsequential, because they’re treating doctors indicated that it’s fine. But from an insurance perspective, it is a disaster. So hindsight, is always going to be the I guess the judgment as to whether we call it correctly, and we just have to accept that we are not fortune tellers, and we don’t have crystal balls and we aren’t able to do everything at the exact right moment. So for some clients sitting and waiting to see what the lay of the land is, is going to be fine for other people. They will end up being stuck for whatever reason, you know, if they have a medical But now, they are now potentially precluded from going across. I think one area that insurers probably will be looking at is what mechanism we can have potentially from moving older books of clients across to newer style products, what potential underwriting considerations we may have, depending on what reinsurance sits behind the old product versus the new to how we might smooth some of that across, and what levels that they’re willing to take on, on for that

Fraser Jack
kind of the kind of feels like there is unknown about the future, the unknown about when at what point the client’s health history is going to be affected, where they can’t physically move from one to, you know, to the new product, versus the unknown of the premiums versus the unknown of, you know, at what point the book, and it’s very easy for, you know, and John, you mentioned lawyers in the past, it’s very easy for Mrs. Blackburn’s of the world to go are you should have done it, then why didn’t you do it, then therefore, let’s throw some throw some mud and see if it sticks.

Dr. Jeff Scott
I think I think the one thing you have to realize as most clients is that today is the healthiest most clients you’re going to be once you go to tomorrow, or the next day or the next week or next year. In most cases, clients are going to have more things wrong with them. It’s just the nature of getting old.

John Cachia
I think there’s also not the final it we’re not finally through it as well to phrase it. It’s there’s there’s still that, that five year old, you know, and I think everyone just got over the first of October last year, and it’s just like that hurdle. But there’s one final hurdle. And Jeff, I’d love to hear your comments around this. Because, you know, I think everyone’s crossing their fingers crossing their toes and hoping that it doesn’t get through. But you know, what, what are you hearing on the ground and, and the potential implications if it gets through as well, too.

Dr. Jeff Scott
So I’ll play this. So what we know from APRA is that there are three more measures that are due to come in on the first of October 2022. And all three measures are in relation to policies issued on or after the first of October 2022. And effectively, they’re what’s called the five year rules. So the first one is that the duration of any policy will be no more than five years. So that’s the that’s the first one. And that’s for new policies issued. So existing policies can be to age 65. And all the rest it. But that’s the first bit. The second bit with those policies is that at the end of every five year period, the life insured gets re underwritten, for pastimes, for income and for occupation, not for health. And then the third component of that five year rule is that when the policy gets renewed the terms benefits conditions are at the date of renewal. So if the terms benefits and conditions have been improved, you then get the improved policy. If the terms benefits and conditions have been stripped back, then you get the stripped back policy. So that’s what we know from APRA. Right now. And again, that’s our that’s our starting point. That’s what the insurance companies are now working towards, in what 10 months time,

John Cachia
Can we look abroad, Jeff, for anything similar, that has been implemented in other countries with a five year rule? Because I see that it’s very hard to administer on all angles. Yeah, from an advisory perspective and insurance perspective. Even a client’s perspective, it sounds like an absolute mess for me. Once again, I think there’s issues with certainty as well to why we actually fundamentally getting personal protection, you know, to have certainty if it’s going to be renewed every five years with the option to get out well, what’s what’s the value of the of the personal protection, they had kick the can down the road, and correct me if I’m wrong, these were supposed to be get done as well to on the first of October 2021. So, yeah, just what’s happened abroad, if any, and then if it hasn’t happened abroad? You know, from my perspective, what are they thinking?

Dr. Jeff Scott
Well, I think let’s, let’s start with the first bit. The product that we have in Australia right now is the best income protection product in the world. And that’s that’s a really good starting point for us to be at. And that’s, that’s based on the products that were issued on or after the first of October 2020. Once the ones that have just came out. That’s our starting point. And that was based on a worldwide survey. What we’ve also found is that in many jurisdictions, the maximum benefit period is only two years. So what it means is that a five year benefit period there are some there’s some that do there’s there’s some places that do up it’s obviously an exception, the the norm. In most jurisdictions around the world is a two year benefit period for income protection or salary continue. It’s our income or placement depending on what you want to call it. So a five year benefit period or a five year duration, is still potentially one of the best in the marketplace. Now, again, there’s various things they have some places will have a 10, year 10 year duration, some have a five year some have some. But again, we’re looking at what we have. And that’s still a very good policy based on world standards. Now, bring it back to Australian standards. What does it do from an uncertainty point of view for the client? Well, it means that every five years, I have to resubmit my income, my occupation and pastimes, to the insurance provider. So if I go from being a brain surgeon to being a garbage collector, then I’ve got to basically inform them of that and my income that goes along with it. If I go from being a garbage collector to a brain surgeon, same situation. Now from a pastimes perspective, I’ve gradually picked up more pastimes over my over my life. So I’ve gone from being a person who was only involved with a sport that’s not to violin called Ice hockey, to be involved with ice hockey, then karate, then ice hockey, then karate, then jumping out of a plane on my 50th birthday with a powered parachute on my back to ice hockey, karate parachuting and, and now I got my motorcycle license a couple years ago. So I’m one of these people that as I’m getting older, I’m picking up more more risky pastimes. So you have to then submit that as well. So what we’re seeing is that the product that we have in Australia is still arguably, even with a five year duration and change of Terms Conditions, is still arguably going to be one of the best in the world as good, it just doesn’t seem as good as the policies we already have.

Serena West
So I would say that maybe we as advisors are jumping ahead with our worries, and that the person that we’re thinking about the client, actually already has a bit of an expectation that when big things change in their life, if we get caught saying, Should I tell the insurance company, I changed my job? You know, I think there is a a general thought that there should be a connection between what they do and what they’re insured for. So I’m wondering if some of the pushback that we’re all thinking is actually around our lens, not not theirs? And whether in the longer term, these things are actually going to make it more beneficial. I mean, I absolutely grant that it will be extraordinarily challenging, administratively challenging, particularly if people have different start dates. Over time, you know, it’s not that always people have one policy, and that’s it, you might have insured yourself at 10 grand a month, and you’ve added on another five that’s got a different start date, all of these things, it’s, it’s going to become a mess. I completely agree there. But I drill back to thinking what is the intention, and the intention is to make sure that what the insurer took on is actually somewhat similar to what they’re going to be paying a claim on. And I don’t have a huge issue with that. I just think that we have to be really, really careful how we pull this together.

John Cachia
Yeah. Who’s paying for it? So when we got more administration, when we’ve got more administration, more paperwork, all of that stuff? Who’s paying for it?

Serena West
Okay, I’m crying. I’m crying while you asked. Yes.

John Cachia
So there’s one. Yeah. Two as well, too, I think it goes back to the certainty can’t like take everything we’ve got like the sole fundamental reason why people get insurance is for peace of mind. And for, you know, the coverage if you think about car insurance, you think about house insurance is like as long as we’ve told them the right thing and we continue to pay our premiums, we will be paid where personal insurance differs. This is obviously a self assessment on you and your health, okay? But that importance factor then skyrockets, so it’s certainty and importance and dependency of that individual is at the highest has ever been declined think that no, because we’re not wired that way. We don’t wake up in the morning thinking something’s going to happen to us or else we wouldn’t get anywhere in life. But going back to this, I understand why now they’re putting it to the table because it creates a better sustainable industry, which is this is what this whole APRA law changes were about. Okay? But once again, what’s the flow in effect? Well, you’re removing uncertainty if you go to say to someone Well listen, that’s cool. We’re setting these up now in five years time, you’re gonna have to tell us again, it’s just that another hurdle that we’ve got to come over in regards to setting the expectation of you need this stuff, you know, how to hide where you need this stuff, and then the administration I’m not sure if the insurers with apparently no cash in the bank are willing to go alright sweet. We’re going to now pay you more commission You know, we’re just going to do a backflip and now start paying the upfront commissions or, or back to where they were. And I may, I might learn differently of that. Okay, but that’s one of the big ones. So then it’s I’ve mentioned going to the client. Now let’s playing this out after five years and saying, Yep, it’s time to review, you’ve got that letter in the mail that you probably didn’t read about lucky, you’ve got an advisor that’s read this. And to do this is going to cost you four and a half $1,000. Because we’ve got to do 25 hours worth of time to be able to do this. Because it’ll be from a best interest duty legislative preset perspective, it’s a review, we’ve got to compare other products. It’s a it’s a trigger point event. Yes. So from best interest, duty, perspective, time, effort, cost money, understand what they’ve done it once again, there’s other red tape that either needs to go or there’s other changes that haven’t. And from what I can read, Jeff, there’s, there’s no indication that they’re increasing remuneration or the government’s funding a scheme for free advice or something to Australians at the five year point.

Fraser Jack
Cathy, you had somebody say, I think, though,

Cathy Kayess
we mentioned earlier, when’s the best time to change the client from the old product to the new product. But we’re also in a situation that for the past three years, we’ve had bubble points, right? Every time a change happens, we’re getting masses of clients into the system, right? Before the change happens, right? So between now and this suppose date in October this year, I’m hearing that, you know, from BDMS, they’re like, Oh, we probably will be changing our product, you know, like expect some changes. And we’ve already seen it since one October. So not only are we looking at a bubble point of October this year, but you know, if I change a client today to a product that next week is a better product than it was today. At what point is it the best point in time? You know, and I think, you know, personally, I’m a client who can’t change insurance books, I’m going to be a client who’s stuck in those old books, that’s going to get more and more expensive. What does that mean for me? You know, I’ll deal with that all doorways, needs analysis and figure that out for myself. But we use that experience to talk to the client about you’re stuck in this book, how does that work? This is why I can’t move you to the new book for those clients that I can move to the new book, Why is today better than tomorrow, when we’re hearing that policy changes are coming through. And I think so I’m looking at, you know, not even getting to that October bubble. Based on what I know today, because so many changes happen. This flows on to, I’m concerned for my colleagues in this advice space, in terms of the work environment that we have had over the past two years, and the work environment that we will potentially have over the next 12 months. If this 10 October bubble or October bubble comes in. Because we know what happens, we’ve seen it happen. And we’re looking at more and more work on more and more advisors, when there’s less advisors in the space. So change is great that the insurers and the regulatory bodies are happy with that. But the law one to the human aspect of that in the future, it’s a massive concern. And I think at some point that needs to be considered in all of these changes as well.

Fraser Jack
Serena?

Serena West
the difficulty also is between triaging for people that have cover in place versus people that have nothing, you know, you are constantly trying to juggle hours in the day and and yeah, crystal ball gazing to think, How can I make sure I’ve helped the most number of people in the best possible way? And I have? Yeah, I haven’t missed anything. Yeah, Cathy’s right. There is an enormous amount and with the bubble points, you know, the the pressure that gets put around those times, and it’s for everyone, it is for all of the insurance. It’s, you know, it’s bizarre, it becomes extremely intense. ,

Fraser Jack
Jeff, there’s been a bit of a couple of mentions there about, about the changes and how the products may look completely different over the next sort of, you know, well, well, at least within the next bubble point hits. But the changes between now and then of all these different products.

Dr. Jeff Scott
I think the the major changes that we’ve saw occurred on the first of October 2021. And that BC were fun. That was the fundamental changes for regards to replacement ratios. The instantly benefits such as trauma benefits, ancillary benefits, such as specified injury benefits have been stripped away, and you’re now getting a pure income protection policy. The five year rules, I think it’s allowing the insurance companies to manage risk. So that again, we’ve discussed this in previous podcasts, that the APRA provisions that they have for the five year rule is to ensure that the clients can reset and make sure that the product is appropriate for their current circumstances. So if they’ve changed occupations, if they’ve changed if their income is changed, it gives them a five year reset situation, which I think is incredibly, incredibly appropriate. Now, the question that’s going to be asked is, if the policy is five years in duration, then does that mean the benefit period can be no more than five years? And again, that has that answer that hasn’t been answered yet. The second question along with that is, again, John alluded to this before was that, since this is deemed to be a new policy, then does the advisors get new upfront remuneration associated with that. And then the third component of this is that when it comes to re underwriting, do the insurance companies have the resources or the processes and procedures in place to effectively re underwrite 20% of their book every year, because that’s basically what is going to be going forward. So that means that you either have to have more underwriters, or better technology, John mentioned about administration, and John mentioned about remuneration. So again, has this been priced in? And what does that mean, to the premiums that are gonna be paid by the by the consumer. So all of those issues are still yet to be addressed? I know that the various I know, the Financial Services Council has discussed this with APRA. I know that various insurance companies, including MetLife, is also discusses with APRA. To find out, what’s the best way to implement this, because we know what the reason for for it is, it’s trying to make sure that we have an appropriate product that provides appropriate cover for the client in their current circumstances. That’s it. So and this was the the last of the measures to basically facilitate that process. So what’s going to happen in the next 10 months, not don’t know. But I know that as an industry, the various industry bodies along with the insurance companies are working with APRA, to find a solution for the first of October,

Fraser Jack
it’s gonna be really interesting what pops up out of this, because as you said, 20% of everybody’s book, to be re underwritten. That doesn’t just add cost. And to the insurance company, it’s adding cost to the in the advice practice, which is, of course, adding, adding cost to the consumer at the end of the day, John

John Cachia
100%. And this is what I’m getting at that a lot of these regulatory changes, we’ve seen the cost of advice absolutely skyrocket. You know, I know, in my practice, and a lot of other people’s practices that I’m speaking to this is, you know, common across the board, as much as we’ve embraced technology as much as possible, you know, to try and curve that, I think it would be much worse if we didn’t embrace technology. So we just need to, we just need to think this out and have proper consultation with the right people. I think the other thing as well, too, is just as a community, really kind of collaborating with one another and having a singular voice, and not a pointy end as well. I’m not talking about where there’s one or two people that are voicing their opinions, it’s more about voicing a common kind of collaborative opinion or view that we can then push out to public, and then push it out to, to government. I think that the biggest thing that I hear on the ground from a lot of people is around first, what do you guys do? And that’s pretty scary that they still don’t know what we do. So that’s one to everyone’s, everyone’s got an opinion in everything that’s goes without saying, but you know, as a profession, what have you like, what’s what are we think that this needs to look like and, and express our concerns in regards to, we’re talking here around affordability for clients, you know, that’s not because we want to be putting more money in our pockets. That’s because we want more people having protection so that if their clients have coverage, and so that’s really where we want to be going with this, and people would have seen hopefully, on my social fight more forums, but if you’re not on my social platforms, feel free to get on there. Don’t beat me up too much. But you know, I’m just trying to get out there and have that, that voice that I’m hearing from my other financial advisor, friends, and hopefully we can do that collectively, as well. And then once again, public first, and if the public has a big enough voice, that they start to put their lens towards that and start to really focus in that area that’s only going to come from collaboration across the board.

Fraser Jack
Now Serena, you also mentioned previously, actually before we recorded this around the concept of that’s not the only changes that’s taking place there’s a lot of changes going on, especially even within the super legislation changes And this that people are struggling to keep up with all of the changes. Yeah.

Serena West
So I think a lot of people I’ve come across are unaware that they’ve lost cover from those couple of changes of predicting your superfan members super first or all of the different wording that they used. And granted, I realized that, you know, there were sent many letters, but most people don’t read them. And if they do read them, it doesn’t fully sink in as to what on earth has happened. So there still is quite a big disconnect between, you know, information being shared, and then that that consequence to people. So it’s pretty sad when people think they’ve got cover, and it turns out, they don’t, because normally, the trigger point for looking for it is because something’s happened. Yep. And then it’s too late. Yeah, definitely is

Fraser Jack
very good. Now, I want to hear from each of our panel members. Again, we’re talking about the future. Where do from here? What’s the optimistic view the version? What tips are we giving to advisors thinking about? Thinking about 2022 and beyond? Let’s start with the UK, I

Cathy Kayess
think, I think, everyone, regardless of what you’ve been doing over the past two years, you’ve had to be adaptable and open to change. We gather for what you’re doing, we’ve all had to do it. Even us, I think most of us are sitting at home today, dialing in, you know, this is something that we never thought we’d have. You know, Zoom wasn’t even a word that I knew two years ago. I think going forward, just be open to being adaptable, still embracing that change. As tough as it’s going to be sometimes. As frustrating as it’s going to be, I expect that the next 12 months is still going to be changed. And just yeah, be open to that. And be open to telling other people I’d be struggling with that change as well.

Fraser Jack
Yeah, that’s a really interesting point. Obviously, there’s people are handling it all in different ways. And we’re all we’re all rallying around each other to try and support those that coping that well with it. So you’re expecting more change, John, what about the future? What’s the next 12 months to two years for look for? For advisors and your thoughts?

John Cachia
It’s actually, I think, amazing, I think the connections that I’ve started to have with people that are sharing the same struggles, the same opportunity or opportunities has been amazing. And I think that that’s going to continue. And I think that what was once a profession that was very isolated, is getting smaller, but getting more closely. Okay. And I think that that needs to continue for us to continue to rally and move forward, I think that the industry is going to continue to have change in 2022, it’s probably, well, I’m probably hoping that it’s not going to be as much change as we had in 2021, I think there’s going to be more consistent change that is going to happen, obviously, we’re really talking about some, but there is a lot of things that is is the come to head, like you know, the pricing pressures on existing books, you know, that’s not going to come straight away. The increased demand for personal protection advice is I don’t see it at its highest, I think it’s still yet to come. And also from unadvised clients as well that may have not yet had. And I hate to put it this way, but this will it is some of those horror stories where they wish they had an advisor to map it out. And that is still yet to come. And so in the next few years, there’s gonna be a lot of opportunity and a lot of exciting times I think ahead, but just get get comfortable with feeling uncomfortable.

Fraser Jack
It’s a really good tip, Serena, what are your thoughts moving forward? For me, it

Serena West
would be that no one succeeds alone. And so it’s around building your, your network, your, your team, your people, and that’s not just inside your business, it’s it’s broad, to to collaborate to to know that you can benefit from other people’s ideas and your own will make the work a lot more enjoyable to also then very much focus on your processes so that we are putting our time and energy into the areas that actually require our our hearts and our our emotions and our thinking so to put our time into the people part. And wherever possible, to automate and process as much of the rest of it as you can and and where you have those solid processes. You don’t have to sit there worrying about compliance because compliance is part of your process. It is always built in and to get excited about helping new entrants to the industry around the great work that we we can do and to be open you know, I think all of us over time have seen paper where they’re like, oh, you know, it used to be much better in the old days and times change, and they’re going to continue to change changes, change is normal. And, you know, whilst some of it, I feel needs to be very well considered, and I can absolutely see some of the changes need more work before when implemented? It’s what’s going to happen. So just get your people around you and and get busy.

Fraser Jack
Yeah, fair enough. And Jeff, will let you have a go at this one as well. What are your thoughts on and tips for advisors on the future?

Dr. Jeff Scott
Well, having been in the industry for almost 30 years, what I realized is that change is constant. So the reason that nerds like me get a job is that every time there’s a legislative or regulatory change, I get basically, under the bonnet get to play with this stuff. So it’s good to be here. So one change is constant to embrace it, the opportunities right now, again, our advisor force, there’s about 18,000 advisors, it’s been reduced from 28,003 years ago, which means there’s more opportunities for the existing advisors, to build very strong, very deep relationships with our clients, embrace it, take it on board, enjoy it. The other thing is be proud of your profession. This is just such a great profession. And the reason that I like the life insurance side of things and reason most of us are in here is that we like we inherently like helping people. And this is the one situation when people actually go through a tough time MetLife and the other insurance providers in the industry actually give a check to the clients. So for me, that’s something to be incredibly proud of, because I’ve got to see this over a number of years, and we’ve got a great industry. So when embrace it, and be proud of what we do be proud of this profession. And again, if you have, if you want any help or assistance, please call out just like Serena said, and MetLife is more than willing to assist with any advisors that need assistance. So, again, I’m enthusiastic about what what we get to look forward to.

Fraser Jack
Yeah, wonderful, fantastic words. And of course, I want to give everybody the opportunity just to to quickly share out them their own details on social media if they want if somebody else wants to continue the conversation with you on these particular things. Let’s start with you, John, what’s the what’s the where can people find you on social,

John Cachia
they consult us usually gone to LinkedIn, probably the easiest find just type in John Kashia, CAC, HRA and on Instagram as well, too. So you see the professional side on LinkedIn, you probably see the real John, on Instagram, that John Kashia is the handle moving to tick tock, next phrase, tick tock. Next,

Fraser Jack
I’ll see you there. Serena, how can people reach out to you?

Serena West
I’m pretty light on social media. Only LinkedIn would be my sole platform. Welcome any commentary on that?

Fraser Jack
Fantastic. And Kathy,

Cathy Kayess
I’m LinkedIn as well. If anyone wants to connect on they’re happy to take them on that space as well.

Fraser Jack
Fantastic. And, Jeff, tell us about the people that are what the ways that advisors can reach out to yourself and your team. If they’ve got questions and want to have a chat about technical issues.

Dr. Jeff Scott
First thing is our BDMS. And state managers at MetLife are very well versed. So first, make contact with your BDM or state manager in respective states. If on the rare occasion, they can’t, they’re unable to assist because it’s too nerdy for them, then they’ll flick it across to me. And more than I do that, again, I’m on LinkedIn as well. My email address if you needed Geoffrey dot j.scott@metlife.com. And or you can contact me by phone 0410 double 01683. So again, more than one assist, I know that I’ve talked to John in the past touchscreen in the past, help them out with technical stuff there’s other advisors have done as well, Kathy, I’m looking forward to a phone call from you. And you’ve got your next technical question. And again, the MetLife team is here to help out. So again, please contact me anytime.

John Cachia
And I’m just going to give a shout out to MetLife as well too. They’ve been absolutely amazing. Their research, the technical team, the support that they’ve given has been absolutely amazing. So for advisors that are listening and looking for someone or a team to it’s not just coming from Jeff on shore, Serena, who’s you go can vouch for them as well. They’ve been absolutely amazing. And it’s great to have someone like that or a team like that now proficient, happy to help.

Fraser Jack
And I would like to thank you all as part of amazing panel to come along and chat about this topic today. And spend too much time on on providing this great content then for your fellow peers. So really appreciate all of your time and efforts. Thank you.