Time for changes to income protection
Financial Services Council chairman Rob Flanagan said he was proud to see how the group’s members came together during the Covid-19 pandemic.
Members, as an essential service, worked with government and regulators to put in place options to support Kiwis.
While the year has been a rollercoaster there is still some way to go as the world will continue to be affected by this pandemic.
“The board and I remain focused on supporting New Zealanders, our members and their teams with a focus on sustainability and wellbeing, key themes of this conference, as we continue to navigate through Covid-19.”
FSC has seen a significant growth in membership over the past year.
“I would like to welcome each and everyone of our new members that have joined and thank all of our members for their contributions that together make the Financial Services Council a continuing success and the Voice of the Sector.”
FSC chief executive Richard Klipin said the theme of the conference, Generations, was not typical of financial services.
However, he said it was ambitious, about the future and about what's important.
Like Flanagan he said it has been tough, and it’s “tested our resilience to respond.”
The sector responded with a clarity of purpose as it focussed on its teams “so they could focus on their clients”. And he is “very proud of how we have collectively responded as a sector.”
During the past 12 months the FSC has conducted Consumer insights and found that:
- Kiwis worry lots about money
- Kiwis don’t speak the language of money very well
- Stress & money worries and very correlated.
The industry can help with guidance, education and “advice is critical.”
The challenge as a sector is to engage, educate and activate.
Economic recovery plans: Robertson vs Goldsmith
Working with business is key to both Labour and National’s post Covid economic rebuild plans – but a conference head-to-head between the party’s finance spokespeople highlighted the disparity in how they plan to do so.
They are rocketing towards election D-day, but Finance Minister Grant Robertson and National Party finance spokesperson Paul Goldsmith took time out from their campaigns to appear at the Financial Services Council’s Generations Digital conference Tuesday.
Both men noted that New Zealand has, so far, managed to navigate the Covid-19 crisis comparatively well, but the focus of their respective presentations was on how to best assist recovery from the economic fallout of the pandemic.
Robertson said that for Labour it is all about focusing on building back better.
Going forward, it is about taking up some of the challenges that New Zealand has had for a long time and that have been bought to the fore by Covid-19, he said.
These include infrastructure, housing, sustainability, and productivity. Training to address skills shortages in crucial areas and job creation featured were critical parts of Labour’s agenda here.
Robertson said New Zealand needs to focus on developing in areas which can offer high quality jobs that support a sustainability agenda, as well as areas New Zealand does well in and can build on, like agri-tech and digital.
Labour wants to ensure New Zealand is a good place to do business in and that involves working with business and listening to their concerns, he said.
“We will strive to do more of that because the only way we are going to recover and deal with the recovery is through partnership. Government needs to be there. We want to help business survive and thrive.”
Robertson acknowledged business concerns about border controls preventing desperately needed skilled labour coming into the country.
They do understand immigration is an important part of addressing this issue, he said.
“Work is taking place to broaden out the number and range of people that can come into New Zealand. We are moving forward on this but we have to ensure we do it safely.”
One thing that Labour doesn’t plan to do is introduce a wealth tax, although they are increasing the top tax rate.
Robertson said they don’t believe that making major structural changes to the tax system in the midst of a once-in-a-lifetime economic crisis makes sense.
One of the great things for New Zealand is the stability of our financial sector, he added.
“There may have been the odd problem over the years but, overall, the sector does extremely well and it is important for people’s confidence in the economy.”
For Goldsmith and the National Party, the key to the recovery is reigning in unnecessary spending
and providing tax cuts for economic stimulus.
He said that the potential for taxes to increase under a Labour-Green government was a real fear for
business.
“Any government which doesn’t control its spending will come after more tax. So we’re about tax relief, particularly for the middle-income bracket.”
Along with temporary tax cuts that means a doubling of depreciation rates for businesses investing in equipment and machinery over the next 12 months.
Goldsmith said this would encourage business to invest and grow and that would help create jobs, as would a more consistent framework for industry.
“The recipe for that has not changed because of Covid-19. It’s about keeping taxes managed and
cutting regulations.
“And we need to be realistic about the cost pressures business is facing. For example, putting up the minimum wage - small business can’t afford such things.”
He also pointed to major infrastructure development as a way to create jobs and said that National’s border management policy would broaden the pipeline of people coming into New Zealand.
People need to think clearly about what is the best business plan to get the economy back on track and provide more opportunities for young and old, Goldsmith added.
“Encouraging investment as a driver for growth – that’s the key thing for New Zealand.”
Industry Insight - Insights from the Reserve Bank
This session featured the Reserve Bank of New Zealand Head of Financial System Policy and Analysis, Toby Fiennes discussing the response to covid and RB’s plan for future.
The Reserve Bank predicts that the economy will not reach levels seen in 2019 until 2022.
Despite this, Fiennes stated that the RBNZ was happy with their response and that their monetary policy strategy had helped to maintain confidence in banking strength.
This strength was tested by RBNZ stress-testing which saw that banks could remain resilient and continue to lend if unemployment rose to 30 percent and house prices fell by a third.
A Funding for Lending Program was announced to provide banks with cash to lend and stimulate the economy without forcing banks to rely too heavily on outside lenders.
While Fiennes stated that banks were in a much better position than they had been in in the GFC, there were still some obstacles to a full recovery. The key obstacles as Fiennes saw them were confidence in the global economy and uncertainty about the health situation.
Income protection: It’s broke, fix it
Those in New Zealand with any skin in the insurance game have been watching Australia very closely of late. This FSC Generations session took a deep analysis of the income protection (IP) issues being faced in Australia and compared it to the New Zealand market. It also offered robust solutions to a very tricky problem.
Moderated by chairperson of LADUCA, Chris Hutton, the session held key insights from Sam Fortey, Kimberley Robinson and Shane Burdack, from Swiss Re who have been deeply involved in assessing the issues of IP in Australia.
Simply put, loose definitions and poor data have meant that IP has given unsustainable losses across the Australian insurance sector.
Before New Zealand insurers begin to feel too smug that we have not suffered similar losses we should be aware that many of the issues Australia faces are present in our markets.
While our insurers do ask about investment income disclosure and offset claims for ACC, New Zealand IP claims also have benefits that do not conform to principle indemnity. Like Australia, New Zealand has seen an increase in IP claims incidence and duration, if current trends continue the New Zealand insurance sector could see themselves in a similar situation to Australia.
The key for Burdack is that “product design must retain incentive for the claimant to return to work.”
Currently the data shows that there is a financial incentive for the claimant to not return to work, and many will be financially in a better position on total disability IP than for the duration of their return to work plan.
The team at Swiss Re offered suggestions for the New Zealand markets to avoid the pitfalls of Australia. The key points were that replacement ratios need to truly reflect an applicant's net assets, the total disability definition is unsustainable and needs to have a greater focus on duties performed, and partial disability claims should have rehabilitation as a core part of their underwriting.
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