Years ago, most advisers were general practitioners. They probably majored in financial advice, risk or fire and general, but they were able to provide advice pretty much across the board. Some if it was good advice, some of it wasn’t.
I am picking that times are going to change and probably pretty shortly. The melt down in the financial markets continues, and the recent Hanover news is not going to be well received amongst the voters of New Zealand. Therefore I wouldn’t be at all surprising to see our politicians, in an election year, have a knee jerk reaction and take urgency over bringing in the long awaited regulation and compliance regime!
Let’s face it, to be a politician you have to be seen to do something, even if it is all too little, too late, so don’t be surprised if some day soon your business is turned upside down.
But why should we be concerned, after all compliance is a good thing. Fundamentally it simply means that you must first of all know the products that you market. You must know your clients intimately to ensure that your advice is personalised and appropriate for them. Lastly you must be able to demonstrate the process and logic as to your advice and make sure it is well documented.
Ah ha, the devil is in the detail. If you were previously a general practitioner, running a bit of a fire and general book, writing a bit of life insurance, dispersing financial advice then your number is up. Have you ever figured out the cost of researching all the products across that full range? Can you really say you know your clients affairs in every one of those disciplines? How would you logically be able to prove and record the advice you were giving? The cost of all that would put you out of business.
So what does that mean? Specialisation! We are all going to have to be specialists in the area that is our chosen career, and not pretend that we can provide a full service business. So today I am going to deal with what the options are for those advisers who have general insurance books. There are plenty of them.
How you can have that cake, and eat it too! What do you do with your general insurance portfolio with regulation looming and insurers becoming much more selective about the agencies they deal with? It’s a question that many advisers and adviser groups are struggling with and there really are only a couple of options available for most of you.
- You can sell your general insurance book to a specialist general insurance broker. Result, a small capital gain, but loss of control of your clients to a third party.
- Become a referrer of business to a general insurance broker. Result, some trail commission which is pretty hard to track over time, but again loss of control of the client to a third party.
- Have your own specialist general insurance advisory operation within your existing business. Result, continuing control of the client, an annual renewable income stream, and potentially a valuable asset at exit/sale time.
So how do you achieve number 3? With the closure of agencies with insurers such as State Insurance and the tightening of controls by other insurers, it is becoming increasingly difficult to operate a general insurance business without the support and assistance of a specialist in this area.
One such group that is different is Insurance Advisernet, (based on a model that has worked well in Australia), which provides a number of back office and support functions to members, and allows advisers to operate a compliant general insurance operation within their existing business.
Aggregation is also happening in the general insurance market and there are now a number of business models available, unfortunately the majority focus on general insurance businesses only and do not take into account the mixed nature of many adviser businesses. We are seeing companies now begin to focus on ownership of the client, providing a range of services including life/risk insurance, mortgage, investment and general insurance, all with the same brand to capture more of the client’s business.
It is vitally important that in each of these areas specialists are employed to offer the best advice after a thorough needs analysis and using the right provider. General insurance is no different, but it may not be as difficult as many people think.
With the potential for one super Regulator under the Financial Advisers Bill that is currently going through the Select Committee process, it will become easier for multiple service businesses to operate in a regulated environment. But with regulation comes compliance, disclosure, education and training – something advisers are very used now with life, risk and investment, but general insurance providers and advisers are way behind their counterparts with many still not prepared for the forthcoming changes.
What can you do with your general insurance portfolio that potentially could be a valuable long term asset and give you greater penetration with your clients? You must decide what of the three options above suit your future strategic direction and if number three appeals then look at a suitable group to help you.
So can you have your cake and eat it too? Yes, but… be careful and ensure you partner with the right people for your general insurance business and don’t be afraid to ask around.
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