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The Professional Insurance Broker
The official magazine of the Professional Insurance Brokers Association
Issue 33 . Summer 2011
1 A n
stn iv e rs ary
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AKEN IN
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Average Pension Managed Fund
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New Ireland Assurance Company plc is regulated by the Central Bank of Ireland and is a member of Bank of Ireland Group.
Chairman’s Remarks
By Jarlath Jordan
It is indeed a great privilege to be elected as your to get the message to more consumers that using
Chairman for the coming year. independent Brokers for consultation is the right way to
go. We need to challenge how the banks have behaved
I have been on the committee for the last five years, and when dealing with our clients. The banking industry has
I have seen how hard our previous chairmen and done enormous damage to this country and to its own
committees have worked for the association. Michael sector.
Hoare gave two great years as Chairman and I would
like to thank Michael for his enormous contribution to Those of you who attended the AGM are already aware
the association and our industry. that one of the reasons for my extension of time on the
board and my duty as Chair is to continue merger talks
At this early stage, it is down to business for me in with the Irish Brokers Association (IBA). I believe the
charting out the future of our association. There are public perception of Brokers united as a single body
enormous challenges both to our industry and to us as would bring valued benefits to our industry. As your
PIBA Brokers. The continual fallout from our economic Chairman please feel free to contact me at any time
meltdown and how Government and regulators are should you wish to discuss this or any other issue.
going about its taxation policies need to be challenged.
My wish in the coming year is to see PIBA move forward
The pensions levy, the life premium levy, the reduction in a positive and progressive manner for the benefit of
in pension threshold, the loss of PRSI relief, the all our members.
introduction of the USC on pension contributions and
the reduced employer PRSI relief are all recent taxation Is mise le meas,
and spending cuts that have an effect on our business. Jarlath Jordan
These are challenging times for our industry and this is
why we need a strong PIBA to represent you. We need
Contents
What are the Benefits of Dealing with a Financial Broker? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Are the Banks Broke(r) ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Industry Round-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Retirement Planning and Risk Management . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Advice - Risk to Become Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Policyholder Protection: Financial Strength of Irish life insurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
To Tweet or not to Tweet – That is the Question . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
First Amongst Equals: the Financial Broker and the Individual Broker Brand . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
PIBA Annual Broker Conference . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
The Best Things come in Small Parcels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
MDRT - What does it Mean? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
BNY Mellon Global Real Return Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Income Protection – Why it is Important in Today’s Environment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Advising DC Scheme Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Thinking of Making the Move? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Book - Blog & Website Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
PIBA Member Profile: Don Murphy, Absolute Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
PIBA Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Crossword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
We’re financially strong for a number of reasons. One being g that
we don’t believe in spending vast resources on adver tising
tising. Ther
are also more tangible reasons, like the fact that we are th
life assurance group in Ireland with a AA rating.* And that
hat we ar
par t of the Great-West Life Assurance Company, one of the world’s
leading life assurance companies, from a countr y rankedked the most
*
**
*
ally sound in the world. Which has to be good n
financially news
clients here in Ireland.
For more infor mation, talk to your Canada Life broker consultant
consu or
life.ie
log on to our eCentre at https://advisorpor tal.canadalife.ie
www.canadalife.ie
www
ww
w.canadalife.ie
*The financial rating shown for the Canada Life Assurance Company is provided by Standard & Poor’s. Standard & Poor’s is a rating agency which provides ratings on the financial strength
of companies. **Source: IMF countr y repor t for Canada, 2009. Canada Life Assurance (Ireland) Limited and The Canada Life Assurance Company are regulatted by the Central Bank of Ireland.
Editorial
have a commonality of language and have a structured
and constant marketing campaign delivering the
message we will succeed in capturing the public's
imagination and drifting into their broader consciousness.
This will be good for us on many levels. Sure the banks
are weak at the moment and we should expect to take
market share from them. However, the game is bigger
than that. It's not just about our share of the pie; it's
about the size of the pie itself. There are so many people
By Donal Milmo-Penny out there who are not properly insured, who need proper
investment advice, who need to plan for their, and for
that matter, their families' future. This is our stock in trade
and people don't realise it. With one united voice and a
Not meaning to sound like Enda Kenny, but I'll borrow a little support from our industry at large, yes we can
few words from Barack Obama this quarter: yes we can. change the game.
Ireland seems to have undergone a psychological I would like to call on all of you to make the Financial
revolution following last month's visiting spree... "if Broker project a success. It's up to you, it's up to me, we
anybody ever tells you that your problems are too big, or have a collective responsibility, this is an opportunity we
your challenges are too great, that we can't do simply cannot pass up. So what can you do? Firstly, adopt
something, that we shouldn't even try -- think about all the language: start referring to yourself as a Financial
that we've done together. Remember that whatever Broker. Secondly, use the Financial Broker branding; PIBA
hardships the winter may bring, springtime is always just will be sending you more information and a branding
around the corner. And if they keep on arguing with you, toolkit in the coming weeks. Thirdly, contribute to the
just respond with a simple creed: Is féidir linn. Yes, we Financial Broker website. The Brokerpedia section is
can." It was a closing craftily tailored to the Irish psyche intended to evolve into a major resource for consumers
that struck a deep chord. If Obama had told us to cheer on financial matters. We need Brokers to contribute and
up or that America was there for us or that things would share their collective experience and knowledge.
come good, no one would have listened ... but he Notwithstanding it being the right thing to do, you will be
phrased it as a challenge and we loved it. All of a sudden credited for your contribution on the site. Please get
the country seemed reinvigorated and full of a long lost involved! You can email Edel (edel.morey@piba.ie) or
positivity. Was it the reflected glory of the visiting myself (donal@mylife.ie) for more on this. The Financial
dignitaries coupled with the spate of successes by the Broker brand is not meant to replace your own brand but
Leinster and Munster rugby teams, and for that matter to run beside it, so you keep your own distinct identity
the Irish soccer team? Was it simply the break we were whilst associating yourself with the Financial Broker
afforded from the negativity fountain of the media? identity.
I don't know, but undeniably the country has taken a lift.
The fog of recession and depression has lifted from the Finally, this month we are introducing the PIBA number.
land and the peoples' shoulders. This is a quarterly forward looking investment sentiment
number based on opinion provided by the PIBA
So roll on the PIBA annual conference. Unfortunately, membership. This will be published each quarter in the
Barak could not make it, but yes we can do events; it was magazine and we hope it will become an important
another great day with some inspirational speakers. Gerry barometer of confidence.
Hussey’s conclusion of proceedings was fantastic: I have
to say I was feeling good going into the day but I was truly Until next time ... yes we can!!
pumped leaving. Personally, I believe the Financial Broker
Please feel free to contact me (donal@mylife.ie) on anything
branding project has the ability to revolutionise our
you think we should be looking at or with your opinions.
business: I am passionate about this. Think about it.
Imagine a world where the public had a proper
understanding of what we do and how valuable that is to
them. Sure, we are all a bit different but it's a major (A) Improving
handicap to work in a business, some would say a
(B) Staying the same
profession, where we don't have a common answer to
the question "What do you do?" I want to be able to say (C) Deteriorating
with pride that "I'm a Financial Broker" and expect the
same level of understanding and for that matter respect How do you ssee consumers’ perception of investment conditions
changing in the coming three months?
as if I said "I'm a solicitor" or "I'm an accountant". If we
Committee Members Sub-Committee Chairpersons
Jarlath Jordan Chairman Life Paul Cullen
Paul Cullen Vice-Chairman General Maurice Harnett
Peter Breen Secretary Mortgage Peter Breen
Liam Carberry Treasurer Legislation Philip Brennan
Kevin Meehan
Maurice Harnett
Dixie Collins
Philip Brennan
Donal Milmo-Penny Chief Executive: Diarmuid Kelly
The Professional Insurance Broker
14B Cashel Business Centre, Cashel Road, Crumlin, Dublin 12 • Tel: (01) 492 2202 • Fax: (01) 499 1569 • e-mail: info@piba.ie • Website: www.piba.ie
Chief Executive: Diarmuid Kelly
Editorial Group: John Hogan, Karl Deeter, Edel Morey. Editor: Donal Milmo-Penny
Publisher: Salient Print Management, Naas, Co. Kildare. Tel: (045) 866057 & (087) 254 3463. Design: Salient Print Management, Naas, Co. Kildare. Tel: (045) 866057 & (087) 254 3463
Views expressed by contributors or correspondents are not necessarily those of PIBA or the publisher and neither PIBA nor the publisher accept any responsibility for them.
The Professional Insurance Broker 3
What are the Benefits of
Dealing with a Financial Broker?
By Diarmuid Kelly, Chief Executive, PIBA
One of the key aims of the Financial Broker branding project is 3. Key financial goals
to develop a well articulated vision of the value add that Some of the typical financial goals Financial Brokers assist their
Financial Brokers bring to consumers. The benefits listed clients with are: protecting the lifestyle of their family in the
below draw on international research into the area together event of their death or their spouse’s death; protecting their
with analysis done with PIBA members and the Life Offices lifestyle against illness or accidents preventing them from
over the course of the research and development stage. What working; saving for children’s education and other goals; saving
we want PIBA members to do is reflect on these benefits and for retirement; investing lump sums appropriately to get the
see if they can be usefully incorporated into the description of best return consistent with the risk they will tolerate; setting up
their services. Some benefits will apply to a greater or lesser a plan to achieve financial independence (where they can live
extent depending on the individual Brokerage. The purpose is from their assets without the need for employment income).
not to get uniformity. However, some degree of common Their Financial Broker will conduct a ‘factfind’ to know them
language in how we describe our services is important in and their requirements and develop a strategy to deal with
creating a visible identity with consumers for the Financial their financial goals in the priority they set.
Broker profession.
4. Matching strategy with a client’s risk tolerance
So we want your feedback on the consumer benefits listed Financial Brokers provide a service tailored to their client’s
below – can they be usefully incorporated into your specific circumstances. The client’s
Brokerage? What are the most important ones that describe attitude to risk is of fundamental importance when making
your services? Are there any other consumer benefits that forward looking financial decisions. Financial Brokers will work
could be added? with clients to establish their risk appetite. This may take the
form of specific risk analysis exercises and may also be
Email us at diarmuid.kelly@piba.ie or edel.morey@piba.ie.
established from the broader context of their interaction. A
1. Competitive markets Financial Broker’s experience will be of great assistance in
This is an underestimated benefit Brokers bring to consumers. ensuring that clients adopt an appropriate strategy that will go
With 1,200 Financial Brokers in Ireland, the eight retail life a long way towards matching their expectations with long term
companies are much more competitive with regard to price, results.
product design, investment performance and service than
would be the case if they dealt with tied channels only. So 5. Making the best choice
before an individual Financial Broker sets to work for the A Financial Broker will assist in finding a product that fits a
consumer, the existence of such Brokers means you will get a consumer’s needs. Every case is different. Age and stage in life,
better deal from life companies and other financial providers. current circumstances and future plans will all effect what will
work best for each individual client. Financial Brokers are
2. Financial Plans and Strategy experienced in guiding their clients through this sometimes
Financial planning starts with assessing the client’s financial complicated process.
goals and lifestyle needs – both now and in the future. A
Financial Broker will analyse the resources available to the 6. Price
client (assets, liabilities, income and expenditure), and the Financial Brokers operate on a fair comparison basis. When
major financial risks they are exposed to, helping them to meet there are multiple products that match a client’s requirements
these goals and needs. Issues are identified and, in discussion they will look to the market and find the lowest cost option.
with their client, the Financial Broker will develop a strategy to Planning for the future is not always a case of finding the
mitigate risks and make maximum use of the client’s money lowest priced option but when there are several suitable
over time. This gives consumers greater financial clarity in alternatives it’s good to know that you are dealing with
relation to their current position and greater financial security someone who can take a broad view of the market on your
about the future. It provides them with a clear financial behalf.
roadmap to achieving the things important to them in their
lives. 7. Investment performance
4 The Professional Insurance Broker
Future performance is not something that can be accurately Broker, an ongoing advisory service may be provided with
predicted and unfortunately Financial Brokers do not have periodic reviews to ensure plans are updated as personal
crystal balls to gaze into. However, they have the skills, training circumstances change. Financial Brokers will also keep a check
and experience to guide consumers in reaching an for any errors the insurer or provider may make with the
appropriate recommendation. Many things feed into administration and management of policy/investments. By
investment outcomes: Financial Brokers will assist clients in regularly reviewing clients arrangements Brokers will assist in
developing a robust and well reasoned process and meeting long term objectives.
methodology that will help them reach an outcome that is
aligned to their plans and expectations. 12. Long term guidance
Research shows that people with long term financial advisors
8. Product features and potential pitfalls typically have higher assets and net worth at retirement age
Financial products such as life assurance, serious illness cover, than those who do it themselves irrespective of income,
investment bonds and pensions can be complicated. Very starting net assets, education and other factors. A Financial
often people don’t fully understand the products they Broker makes the perfect fit for such a long term advisor. They
purchase and can be caught unawares by technical features are typically well experienced in the financial services industry,
of policies and investments. have good ‘people skills’, and are independent of companies
A Financial Broker will navigate clients through this maze, and institutions; and the ethics of the business put client
pointing out issues and features relevant to them. This gives interests first. They are well placed to guide consumers
greater peace of mind in making major financial through the maze of selecting financial products.
commitments.
13. Same relationship
9. Service Sometimes when dealing with large institutions you are
Financial Brokers exist to assist clients in planning for the rotated regularly as different people move around.
sometimes unpredictable future. By its very nature this is a A Financial Broker typically has a long term relationship with
long term relationship and hence a high level of personal his/her client so you don’t have to spend time repeating
service can be expected. Financial Brokers will look to work yourself and can be assured that your advisor has a full grasp
through the varying stages of a client’s life and help them with of your needs and requirements
sometimes complicated and far reaching financial decisions.
One can expect a high level of personal service that may not
be available from a very large organisation. Financial Brokers
rely to a great extent on their clients for referrals to sustain and
develop their businesses so they can look forward to dealing
with someone whose interests are directly aligned with theirs.
10. Arranging the policy and implementing the plans
There can often be considerable amounts of paperwork
involved in implementing financial products. A Financial Broker
will be familiar with this and ensure that policies and
investments are set up correctly. In some instances there will
be money laundering and other statutory compliance
obligations. Brokers will be familiar with these and will assist in
ensuring everything is processed properly and efficiently,
taking a lot of stress and paperwork out of the client’s hands.
11. Review
Depending on the nature of the engagement of the Financial
The Professional Insurance Broker 5
www.brokerfirst.ie
www.brokerfirst.ie
Your
Your
ou Commission, Y
Your
our Way
Way
Introducing
Introducing the next steps
Following the launch of the new commission options on our protection pprroducts,
o we are
delighted to bring you a similar package across our pension products.
You can now choose from a range of different options depending on your
ur clients need
needs
eds and
d
how you want to structure your business.
Flexibility to suit yyour
our business
With changing client circumstances and the impact of pension legislation, increased
flexibility and options for commission are required. We have introduced a number of
specifically designed options, including trail commission friendly choices, which we
feel will meet both the needs of your business and your customer requirements.
Find out mor
more
e
We promised we were shaping the way brokers are remunerated and will
continue to look at ways of supporting you. You can find out more about
what the new Pension Commission structures mean for you and your
business by visiting www.brrokerfirst.ie or contact your Friends First
Account Executive.
Pensions
P ensions P rotection
Protection Inv
Investments
estments
Friends First Life Assurance Co. Ltd. is regulated by the Central Bank of Ireland.
Are the Banks Broke(r) ?
Eunan O'Carroll, Sales & Marketing Director, Friends First
Over the last twenty odd years, I have been contributing to and
reading the many articles in this publication on key issues
facing our industry. We have all witnessed profound changes
over the last two years and all of us have had to make the
necessary changes to adjust to this new reality. Whatever the
future holds, the current period of flux and readjustment is an
ideal opportunity for all of us to step back and look at the
challenges this industry will face in the years to come. In doing
relationships with a number of product providers allowing
so all of us involved in doing business in the independent
them to provide advice on a scope of products and solutions
Broker market must be mindful of the Broker’s ability to
and to shop around on the client's behalf to find the most
survive, remain relevant and challenge whatever is thrown at
suitable solutions for them. At present the banks have a tied
them in this competitive marketplace.
agency with one provider only. This automatically limits their
If Brokers are to maintain their revenues and continue to build ability to look beyond that institution to other product
their business in a market that is set to change once again, providers. This is about to change with the banks now
with the re-entry of the banks back into the Broking space, how preparing to re-enter into the Broker market.
can and should life assurance companies support them? Now
I would like to reiterate again the importance of raising the
is the time for open and honest dialogue between the Brokers
debate in the minds of the customers as to who is the real
and life assurance companies to develop new ways of working
source of independent best advice, and for all of us involved
together to build upon the strength of the independent Broker
and dependant on the goodwill and trust of our customers to
channel and ensure its continued success.
demonstrate the highest level of integrity, value and above all,
The re-entry of the banks back into the Broker area is perhaps best advice.
the biggest challenge the independent Broker channel will face
It is also time for a strong voice within the Broker market and
over the next five years. As banks begin the rehabilitation of
for all Brokers to work together to ensure that clients get a clear
their business model and customer proposition, it will be the
message on where to source this best advice and what they
financial services business and not the banking services
should expect from their trusted Brokers throughout the
business that should lead the charge. Whatever the response
country. The challenge is how to reach a consensus amongst
from the independent Brokers, one thing is for certain: this is
Brokers and life companies. How will the life companies and
going to be the mother of all battles and one where a strong
Brokers work together to take advantage of this unique
Broker voice is needed like never before.
business environment? What commitment and tangible
It seems that the best product available on the market today, investment will both parties provide to re-educate the public
which many non-Broker clients have not been given access to before the banks re-enter the Broker market?
but most would value highly in the current market, is impartial
Let's take advantage of this business environment and
professional best advice in relation to their current, never mind
together let's re-educate a more balanced and open-minded
future, financial needs. All of us operating in the Broker market
consumer to the benefits of selecting the independent trusted
would do well to remember the success of the past and the
financial Broker to manage their financial affairs.
value that we brought to customers over many years.
Now is the time for all consumers to realise the advantages of
The banks, who for so many were considered safe as houses
seeking independent advice. At a time when all of us are
and the custodians of trust and honesty, are on their knees
looking for the very best value for our money, no other
with little prospect of any sympathy from any customer or
financial advisor is as appropriately positioned as your financial
business partner. We all know that consumers, particularly
Broker to help you through these decisions. Gone are the days
financial consumers, are extremely vulnerable at present and
when you can just simply bank on your local bank. Consumers
to a large extent at the mercy of the integrity of those they will
need to use the network of advisors that are available to them,
depend on to sort out their current financial issues. So who
and then make their decisions once they have been provided
can consumers turn to?
with all their options. It is time now for the industry to push
Against this turmoil, we need to remind ourselves of the wide harder for the unbundling of banking services and financial
range of services that Brokers can offer to those seeking services so that consumers understand the difference; and the
financial advice. Unlike the larger banks, Brokers typically have commercial playing field is finally levelled.
The Professional Insurance Broker 7
Industry Round-Up
Incoming PIBA Committee
The newly elected PIBA Committee was voted in during the PIBA AGM on the 26th of May 2011.
The PIBA Committee
2011/2012
Jarlath Jordan -
Chairman
Paul Cullen -
Vice-Chairman
Peter Breen -
Secretary
Liam Carberry -
Treasurer
Kevin Meehan
Maurice Harnett
Dixie Collins
Phillip Brennan
Donal Milmo-Penny
Back Row left to right: Maurice Harnett, Donal Milmo-Penny, Peter Breen, Kevin Meehan
Front Row left to right: Paul Cullen, Jarlath Jordan, Philip Brennan, Liam Carberry, Dixie Collins
The Insurance Institute of Ireland Networking and CPD Event Royal Liver’s ‘Transfer of Engagements’ to Royal London
19th July 2011, Clarion Hotel, Cork
For the last twelve months Caledonian Life's parent company,
The Insurance Institute of Ireland would like to invite you the Royal Liver Group, has been in merger talks with fellow
and your colleagues to attend a networking event with mutual, the Royal London Group.
Mike Kemp, CEO of the Irish Insurance Federation
Caledonian Life is pleased to announce that Royal Liver’s
speaking on ‘An Overview of the Insurance Market 2010 /
‘Transfer of Engagements’ to Royal London has now been
2011’ on Tuesday 19th July 2011 in the Clarion Hotel, approved, following a vote by its delegation at the Society’s
Lapps Quay, Cork from 8am – 9am. This event is free of Annual General Meeting in May. The delegation, which is made
charge. up of the elected representatives of members (Royal Liver and
Caledonian Life policy holders) voted in favour of the
For information and to reserve your place at this lecture, please transaction, which subject to regulatory approval will see Royal
visit www.iii.ie/events and enter your details under the Cork Liver transfer all of its assets and liabilities to Royal London on
CPD Events section for immediate confirmation, or contact the the 1st of July 2011. This of course includes Caledonian Life.
Events Team on 01-645 6666.
The benefits and features of your clients' existing Caledonian
For this lecture, PSAB-GI have awarded 1 Formal Hour for CIP’s Life policies will remain unchanged. Caledonian Life is open for
and for CPD Members of the Insurance Institute of Ireland. new Protection business and from the 1st of July all new
business will henceforth be underwritten by Royal London. It
The Insurance Institute looks forward to welcoming you also is intended that the Caledonian Life brand will remain in
and your colleagues on the day. place. (cont’d)
8 The Professional Insurance BrokerRoyal London is the largest mutual Life and Pensions Company PIBA Broker Conference 2011
in the UK with Group funds under management of 48 billion
Euros. Their Group businesses serve over 3.1 million customers The Annual PIBA conference took place on Thursday the 26th
and employ 2,790 people. Royal London also has a history of of May 2011 in the Radisson Blu St.Helen’s hotel, Dublin 4.
providing excellent support to its subsidiaries. Royal London’s The conference theme was ‘Financial Broker – a BRAND New
other subsidiaries include Scottish Provident and Bright Grey for Future’. Conference delegates were introduced to the
Protection, Royal London Asset Managers, Royal London 360, ‘Financial Broker’ Brand, a project which PIBA initiated with the
Ascentric/ Fundsdirect for Investments, Royal London retail and support of the Life Offices.
Scottish Life for pensions.
Presentations included: ‘The Five key steps to Referral Success’;
This is a very positive development, and a vote of confidence for ‘Positioning for Success in a Competitive World’; ‘First among
both Caledonian Life and the Broker market in Ireland. Royal Equals: drawing on your natural resources to build your brand’
London look forward to sharing their exciting plans for and ‘Defining Greatness: a champion’s response to challenge’.
Caledonian Life with you following the full and final completion
of regulatory approval, and Caledonian Life's subsequent PIBA would like to thank Best Advice, who supported PIBA
integration into the Royal London Group. members as conference partner for the fourth consecutive year.
Special thanks to Standard Life who came on board as the
other main sponsor and kindly sponsored the barbeque and
drinks reception. Also, thanks to the other sponsors - Assurant
Standard Life National Investment Roadshow and Financial Express.
Standard Life recently held a national investment roadshow The conference was a great success and can perhaps be
attended by over 300 Brokers in Sligo, Galway, Limerick, Cork summed up by the following comment:
(2), and three well attended sessions in Dublin. Due to ‘An excellent informative conference. It was great to meet up with
demand, it has planned three further smaller events in so many positive likeminded people. I really enjoyed the panel
Letterkenny, Kildare and Kilkenny for June. of speakers who kept their presentations specific and to the point.’
David O’Brien (SLI) and Nigel Monaghan spoke about Standard
Life’s investment capabilities and options. Jim Connolly See pages 16 and 17 for photographs.
presented advisors with some excellent pensions sales
opportunities. David Nixon explained how social media can be
used to generate new leads - an extremely popular session
where advisors young and old were eager to learn how to set Zurich Life Guaranteed Tracker Bond Series 1
up Facebook accounts! Nigel Dunne reinforced the message
that customers want a secure home for their pensions and In May, Zurich Life launched its first ever tracker bond.
investments; but most importantly that they want expert and This innovative bond is designed for clients who:
professional advice. u want the security of knowing that their original investment
“Due to the extremely positive nationwide feedback received, is 100% protected if held until the 6th of June 2016,
we added three June venues” said Brendan Barr, Head of u are happy to invest for approximately five years or more, and
Marketing. u are looking for a return that is potentially better than they
can currently get from a traditional bank account.
The return is linked to the performance of the Euro Stoxx
50 Index (excluding dividends.)
Zurich Life has chosen to invest in an account with a financially
strong counterparty, Credit Suisse International, which is part of
a world leading financial services group with 153 years of
experience.
The tracker bond offers protection from a large fall in value
each month (the maximum gain is 3% per month) and has an
innovative lock-in feature to help protect investment gains.
Series 1 is available for once-off investments until the 1st of
July 2011.
There has been a very good take up for the bond so far and
Zurich Life anticipates that into the future it will deliver similar
Standard Life Investment Roadshow, Four Seasons Hotel, Dublin
offerings to meet the needs of your clients.
The Professional Insurance Broker 9Retirement Planning
and Risk Management
By Paul Grimes, Financial planning practitioner and consultant
Macro perspective allocation considerations for those with personal pensions; and
One of the key tenets of personal financial planning is the post-retirement, an assessment of annuity structures versus
consideration of the trade-off between a client’s current Approved Retirement Funds for those that could avail of same.
spending requirements and the need to defer some of this The changing landscape around retirement planning will
spending into the future. Simply put, clients (with the possible require financial planners to develop more sophisticated risk-
exception of public servants) need to recognise that present management models. The following are some additional
earned income is required to satisfy both current lifestyle considerations that might be adopted in framing a more
requirements, and the need to accumulate capital in order to comprehensive risk management model:
provide for a stage of life where it is no longer possible to earn u To what extent do you think that social welfare
income. Deferred spending occurs in two ways: through pensions will be available for your clients?
government intervention by way of PRSI, income taxes, USC
etc., which go in some way to fund a social welfare pension; It seems likely that the quantum and availability of these
and through a personal commitment to accumulate capital. pensions will be given some consideration. To draw a
Historically, government incentives through the tax system comparison, in the mid-90’s, facing a similar problem in terms
have encouraged the use of pensions as the main vehicle for of ageing populations and poor uptake in private pensions, the
accumulating this capital. Australian Government introduced compulsory pensions for all
It appears certain that future government intervention in the employees; and at the same time made access to the old age
retirement planning arena will be influenced by two conflicting pension more restrictive. This was achieved by the
considerations: firstly the dire need to raise revenue for the introduction of asset as well as income tests. The following
state coffers, and the availability of a pot of capital of circa extract explaining the assets test was taken from the Australian
€75bn in private pensions from which to raise some funds Government website last week, “If you have assets but little or
(via the recently introduced levy) presents one opportunity; no income you are expected to rearrange your affairs to
and secondly, the dire state of retirement provisioning for most provide for yourself.” It should be noted that a private dwelling
citizens of the state. above a certain value is included within the term asset.
It is arguable that the urgent need to frame a coherent long- u How secure is the structure used by your clients
term approach to retirement planning has been hijacked by for accumulating retirement assets?
the pressing need to raise much-needed revenue to sustain The recent Murtagh case has raised doubts as to the security
our over-spending on public services. For financial planners, it of pension funds. It is evident that the structure of ARFs,
is essential to frame personal financial planning advice with PRSAs, Personal Pensions and Occupational Pension Schemes
some awareness of the macro issues that are most likely to can carry differing levels of security. On a related note, the
influence government policy in the area of retirement perilous state of many Defined Benefit Schemes has raised
planning. Whilst it is impossible to determine the exact nature serious questions as to the security of pension entitlements for
of any changes, it would be prudent to plan on the basis that current employees. Consequently, for some, the use of
the status quo will not continue.
traditional pension products as the primary vehicle for
accumulating capital may soon become less relevant.
Factors likely to influence future developments in
Government Policy Alternative structures, including off-shore considerations, will
likely play a greater role on retirement planning in the near
1. At the moment, the ratio of workers to retirees is 5.6:1. future.
By 2050 it is estimated that the ratio will be 1.8:1. The
cost of maintaining the elderly is set to increase from 5.5% u What is the likelihood of further government
to 15% of GDP in four decades. intervention in the retirement planning arena?
2. The special Report on Public Service Pensions in 2009 Recent government interventions in the form of the pensions
highlighted that annualised pension payments will increase levy, and the change to the Standard Fund Threshold (SFT)
from €2.4bn to €14.7bn over 40 years. Extra life
have the potential to create significant tax liabilities for clients.
expectancy is the main cause of the blow-out.
Careful management of existing pension arrangements will be
3. Three-quarters of all private pension funds are in deficit. required to ensure that punitive taxes of 69% to 72% are not
Many in the holy grail of all pension funds, Defined Benefit triggered. This will extend to asset allocation considerations;
Schemes, are likely to face reduced benefits, and in many future contribution levels; and potentially triggering benefit
unfortunate cases, the complete loss of entitlements.
crystallisation events. Further planned changes affecting the
4. More than 30% of over 65’s in Ireland had incomes below
tax incentives associated with pensions have resulted in
the OECD poverty threshold in 2005. Only Korea and
uncertainty surrounding the whole area of pensions planning.
Mexico of the 30 OECD countries have higher old-age
poverty rates. Furthermore, it is likely that government policy will at some
stage turn to the vexing issue of poor pension coverage. What
5. There is an increasing dependency on the state to provide
are the chances that a regime of compulsory pension
retirement income, at a time when state finances are
contributions, with or without tax incentives, is rolled out in the
decreasing. This situation is likely to be exacerbated in the
future?
future as the population ages.
For certain, advice to clients in this area of planning is set to
Implications for Financial Planners in Ireland become more complex. As ever with these things, it will
Historically, risk management in the area of retirement require an adjustment to business practices in order to retain
planning would predominantly have been confined to asset existing clients, and to also attract new clients.
10 The Professional Insurance BrokerInvestment Advice
- Risk to Become Central
By Paul McCarville, Principal, Clarus Investment Solutions
Recent times have seen the highest pace of product
development that I can remember: as well as the quantity of
new funds available there is real diversity. Even in the
structured/tracker area many of the offerings are
unrecognisable from what went before (and are far more
complex). Absolute Return funds are becoming mainstream
and other funds using derivatives are gaining acceptance.
In the face of growing product complexity how are Brokers between all types of fund and is especially useful in the area
to understand risk and adequately represent it to their of Absolute Return. While most providers do not provide this
clients? The risk ratings of product providers have not proven metric, Brokers who have a good database/data provider can
especially reliable in the past, with many anomalies and generate it themselves. Certainly those who bought equity-
inconsistencies. Some of the descriptions are worse than based products in the middle years of the last decade would
‘anomalies’ – one product currently being promoted is have been well served by being shown the scale of losses
represented at a risk level well below that indicated by suffered in the ‘tech-wreck’ of ‘01/’02.
objective measures.
Even if we assume that the risk ratings of individual products
To be fair to them, most providers do their best to properly are completely dependable, what happens when products are
represent risk, but they do so within different scales (1-3/ combined? No matter how ingenious product development is
1-5/1-7) and using different bases. It is time that the providers or how outstanding performance, most Brokers and more
agreed, or were persuaded or compelled to use a common astute consumers will not want to commit totally to one
framework; and the good news is that this is on the horizon. provider. As most readers will know combining equal
allocations to a ‘6’ and a ‘2’ does not necessarily produce a ‘4’;
A methodology prescribed for UCITS by the Committee of
Brokers who want/need to combine products will need to find
European Securities Regulators (CESR) is likely to migrate
some other way of gauging the risk profile.
to the world of unit-linked funds before too much longer. It will
provide a specific ranking (more accurately a ‘synthetic risk and If the effort to assess the risk of a fund or portfolio is an inexact
return indicator’) on a scale of 1-7 based on historic volatility. science, so also is assessing the risk tolerance of the client. The
While not perfect, it will be consistent and objective and client’s capacity to take risk is probably even more crucial - it is
therefore of real value to Brokers and consumers. here that measures such as volatility and maximum drawdown
can come into their own. Telling a client that they have X
Bringing in the CESR methodology, while a huge step forward,
probability of losing more than they can afford (or that their
is not a panacea. It is based on five years of weekly price
ARF will be depleted too soon) is no more than a well-
movements, which many funds will not have. Then there is the
informed estimate, but it is surely a lot better than the
matter of structured products and Absolute/Total Return funds.
alternative!
In all probability it is with new, ‘non-standard’ funds/products
that problems are most likely to arise. While very much an advocate of risk profiling software, it is just
a tool to put parameters around or kick-start a discussion.
The CESR methodology includes procedures for such ‘non-
I would be concerned that third parties such as regulators, PI
standard’ funds, or funds where the actual history is too short,
insurers, the FSO or the courts think that the process of
but they are both mathematically complex and challenging in
gauging the client’s risk profile and marrying that to risk-
terms of the well-informed judgements that are called for.
defined products is a more ‘exact’ activity than it is, or ever
Where there is room for interpretation there is room for
should be. Having said that, better definition around the
manipulation. The inadequate labelling of a current product
riskiness of investment products on the lines of CESR will
referred to earlier (and previous episodes) would suggest that
represent very substantial progress.
an assumption of integrity on the part of all providers at all
times is probably unwise. The more structure and objectivity can be shown to have been
involved in the advisory process, the more Brokers will have to
Whether or not the CESR methodology arrives, Brokers would
fall back on if things go wrong. It is also likely that the advice
do well to look to Maximum Drawdown as a key risk indicator
they provide will be better, and consistently so.
– as the biggest possible loss which could have been suffered
over a given period, such figures can be quite a stark reminder Paul McCarville is a Principal in Clarus Investment Solutions,
of what can happen. This measure stands comparison an independent investment consulting firm.
The Professional Insurance Broker 11Policyholder Protection:
Financial Strength of Irish life insurers
By Kevin Manning, Consulting Actuary, Milliman
Not long ago phrases such as “safe as houses” or “money in circle with more depositors getting jittery and the bank
the bank” conveyed a sense of security and permanence. Not haemorrhaging money. In short we have the famous “run on
any more. The world is thoroughly changed and few the banks”.
economies have changed more than our own. With all that has
happened in the banking sector, it is no surprise that public The phrase “a run on the insurance companies” is not quite so
confidence in financial institutions has been rocked, and famous. To understand why, let’s look at a simplified flow of
consumers are reasonably questioning the security of their life money through a typical life insurer. Let’s assume you have
and pension policies. decided to invest €100 into a unit-linked fund with an
insurance company. Like a bank, the insurer immediately has
This article focuses on the life and pensions industry and an asset of €100 (the assets in the fund) and a liability of
examines the key protections that exist within that industry to €100 (the value of the assets in the fund).
differentiate it from the banking industry. Rather than looking
at individual companies, analysing balance sheets, and Here’s where things get very different though. Under current
comparing the financial strength of one insurer with another, solvency rules, Irish life insurance companies must calculate
the intention is to focus on the industry as a whole, highlighting the liability to you on a prudent basis, and must take account
the layers that are in place to protect customers of Irish of any options you may have, any guarantees they have given,
insurance companies. the likely expenses they will incur, the payments they will need
to make on death (calculated in a prudent way), and so on.
Could life companies develop the same types of
problems as the banks? The responsibility for calculating and certifying these liabilities
To answer this question we need to consider the main flows falls to the Appointed Actuary, and the requirements for
of money into and out of a bank and compare these with an prudence in this calculation mean that the amount set aside will
insurance company. Every time you deposit €100 with a bank, at least be the surrender value of your policy, and will typically
they immediately have an asset of €100 (in cash) and a be considerably higher. This means that, for many insurers,
liability of €100 (the amount owed to you). To reward you for selling policies requires more capital: comparing the banking
depositing money, the bank may pay you interest over time. To example, the balance sheet for an insurer after taking a €100
make money, the bank will look to lend some of the €100 to investment can look like the example shown in Figure 2.
someone else. That person will pay interest to the bank and, Figure 2: Insurer Balance Sheet
as long as it's higher than the interest the bank pays you, they ASSET AMOUNT LIABILITY AMOUNT
will make a profit.
Assets in the fund €100 Surrender value €100
In this scenario, the bank’s profits are constrained by the Additional assets €10 Additional prudent liability €10
amount of money it has to lend out—in this case your deposit.
To really make some money, it might want to lend more than
the amount it takes in deposits. To do this, it needs to source This is a much lower risk proposition than the banking
money from elsewhere—which leads banks to borrow from equivalent. Market movements may reduce the assets in the
other banks. fund, but the surrender value element of the liability would
reduce accordingly. For the insurer, the key challenge then
If the interest rate they pay to the other banks is lower than the relates to investing the additional assets appropriately to match
interest rate they receive on their loans, the banks can turn a the additional prudent liability. Rules around the investment of
profit. A bank may take a view that for every €100 it receives these assets encourage insurers to avoid risky assets, to
in deposits, it should lend €150 to customers and hold €20 diversify investments, and to closely match asset and liability
in cash. To achieve this it will need to source interbank loans profiles where possible. In the event that policyholders wanted
of €70. A simple balance sheet is illustrated in Figure 1. their money back, the surrender values would be paid out, and
the additional prudence would be released.
Figure 1: Bank Balance Sheet
ASSET AMOUNT LIABILITY AMOUNT This is not a categorical statement that all insurers are safe.
Clearly specific issues can arise at individual insurers which will
Cash €20 Deposit by you €100
threaten their viability. However, the same level of systemic
Loan to customers €150 Loan from another bank €70 risk that was apparent in Irish banks is not evident in Irish life
companies.
The bank faces some key risks. Firstly, what happens if
customers are unable to repay their loans? The bank relies on Are there additional protections?
the €150 asset: if people cannot repay and the loans need to We have seen that life insurers must set aside assets to meet
be discounted, then this will cause a significant problem for the any surrender values of policies, and set aside further assets in
bank. Secondly, there is a funding risk. Other banks may no respect of any additional prudently calculated reserves. These
longer be willing to lend, or the terms of this lending may twin layers are not the only layers of policyholder protection
become very expensive. Suddenly the bank’s balance sheet that are afforded by the Irish regulatory system. A third layer of
can start to look vulnerable. Nervous depositors may start to protection comes from EU rules prescribing a required
withdraw their deposits and very soon we can have a vicious minimum solvency margin that insurers must hold. Insurers
12 The Professional Insurance Brokermust at all times hold sufficient assets to meet this additional
requirement. A fourth layer of protection comes from rules
imposed by the Central Bank of Ireland, which increases this
additional layer of protection to at least 150% of the EU level
(200% for newly established companies).
How important is having a strong parent company?
Being a subsidiary of a well-run and well-capitalised parent can
only be an advantage for an insurer. However, it is also
important to recognise that the rules relating to the assets
insurers must set aside require the local insurance company to In this context it is important to note that the Central Bank has
hold those assets directly. Irish insurers cannot rely on the issued strong new measures designed to raise standards in risk
promise of capital from their parent companies, but must have management and corporate governance for Irish insurers. It
the resources themselves to meet these obligations. has beefed up its resources and will focus them on companies
with higher levels of risk. Having well-run companies with good
How have Irish life companies weathered the financial crisis? risk management practices forms a critical aspect of consumer
Despite the almost unprecedented level of recent market protection in Ireland.
turmoil, life insurers have so far proven remarkably resilient.
One measure of financial strength is the solvency ratio, which Importantly, in the unlikely event that a company becomes
supports this view. insolvent, the assets set aside to meet liabilities to
policyholders cannot be touched for other purposes (other
The solvency ratio looks at available assets (the total amount than to pay the fees of the administrator if necessary). This is
by which assets exceed prudent liabilities) measured as a an important final layer of protection—companies cannot use
percentage of the EU required minimum solvency margin any of these funds to pay wages, the taxman, or other
(RMSM). Of course we know that the Central Bank requires creditors. The policyholder comes first.
that insurers have available assets not just equal to the RMSM,
but equal to at least 150% of it. In reality, insurers will try to What is Solvency II and what impact will it have?
operate at a level above 150% to provide some additional This article has focused on the solvency regime that currently
protective cushion. The table in Figure 3 shows how the applies. A new solvency regime (Solvency II) will come into
solvency ratio has moved in recent years for the domestic life effect in January 2013, changing how insurers calculate their
industry as a whole liabilities and capital requirements.
Figure 3: Solvency Ratio, 2004-2009 (€ billions)
Detailed analysis of Solvency II is beyond the scope of this
Available Solvency article, but the broad principle is similar to the current solvency
Assets RMSM Ratio
regime—companies must set aside amounts to meet liabilities
2004 €2.4 €1.0 240% with an additional layer of assets to protect against insolvency.
2005 €3.1 €1.1 272% Under Solvency II, the balance between the various layers of
protection will change. For some companies this may result in
2006 €3.7 €1.2 304% lower levels of capital being held than under the current
2007 €3.4 €1.2 285% system.
2008 €2.3 €1.2 194%
However, Solvency II will increase the focus on risk. The new
2009 €2.6 €1.2 216% regime is not just about financial calculations, but also about
Source: Milliman analysis of life company regulatory returns. how well companies are run. As a result, we would expect the
new world of Solvency II to further enhance policyholder
Figures for 2010 are not yet available, but Figure 3 shows protection as companies better recognise and more effectively
significant resilience, despite considerable challenges. manage the risks that they face.
Solvency ratios fell in 2008, which is due in part to the general
economic environment, as well as circumstances of individual
companies, but broadly the levels of cover suggest a well-
capitalised market overall.
Despite all the protection, can it still go wrong?
Of course the layers of financial protection in place cannot
guarantee that an insurer will not go belly up. Internationally,
the sorts of issues that have affected insurer solvency have
typically related to risks that the insurer had taken on without
fully recognising or properly managing. For example, this might
take the form of guarantees the insurer had given, without fully
calculating the cost of those guarantees.
The Professional Insurance Broker 13To Tweet or not to Tweet
– That is the Question
By Michelle Kearns, eBusiness Manager, Canada Life
10 tips for using Twitter for your business
You may have heard of Twitter - the social networking and
microblogging service. add to your existing communications plan. All of your marketing
Twitter enables you to send and receive short messages called communication elements need to work together to get
‘tweets’. The maximum length of each tweet is 140 characters. maximum impact.
You decide who you want to receive tweets from (companies
and/or individuals) by choosing to ‘follow’ them, and you receive If you are including links to your website in your tweets, the
a notification every time they post an update. website www.bitly.com is very useful to shorten urls and website
links, so you get the maximum use out of the 140 tweet
How to set up a Twitter account character limit.
u Log on to www.twitter.com - pick your user name and set up
your profile. 6. Measure success
u Brand your Twitter profile with your logo and corporate Managing Twitter content and tracking usage and success against
imagery so it reinforces your corporate brand image. your agreed targets takes time, so it is important to make sure
u You are now ready to go. You can log on to your Twitter you have a communications strategy and a resource plan
account from your PC/laptop or mobile phone (if it is confirmed a couple of months ahead at a time.
Internet enabled) to check and post updates as often as you wish.
7. Control the content management process
Ten tips for using Twitter for your business Recognise the power of Twitter and ensure that controls are in
1. Add value with your content place to regulate and control content updates: remember once
Send valuable information to your customers – not spam or an update is published it cannot be retracted.
banter. Use Twitter to update your customers on important
8. It’s not a quick fix!
regulatory or industry changes, invite them to take part in an
Twitter, as with many of the social media platforms, is not a quick
upcoming webinar / join you at a seminar, or tell them about
fix to cure your communications ills. If you are not going to
your latest customer newsletter.
persevere with it as a component of your communications
2. Pass it on strategy over the medium to long term, then stay away from it
Remember that you do not have to create the content yourself and concentrate on other methods such as email or text
– you can follow industry experts on Twitter and then pass on messaging instead.
(or ‘retweet’) their information to your customers.
9. Check out the competition
3. Don’t leave your customers waiting When starting off it can be useful to follow your competitors’
Twitter is very useful for customer feedback and dealing with activity to see what they are tweeting about to help you build
customer queries and many companies are now choosing to use your own strategy.
it in this way. However, it is not wise to attempt this unless you
10. Start slowly
can resource it fully within your business, and can react to all
Finally, if you are still unsure as to whether Twitter is the right
customer queries and feedback promptly and professionally.
communications medium for your business, then a useful initial
4. Be careful about mixing business and pleasure step is to set up social media monitoring. This will allow you to
Be careful about mixing business and personal in the public search Twitter (even if you are not a registered user) for
domain and using a personal Twitter account for business mentions of your business – both positive and negative. Many
purposes. You need to be very careful about the personal companies now offer this service, but a free tool is also available
information you tweet about - as your communications may to help you do this: www.search.twitter.com.
become blurred in your customers’ minds and any informal
banter or personal comments may have a negative impact on
your corporate brand reputation.
This article does not constitute advice or an advertisement and does not form part
of any contract.
5. Integrate Twitter into your marketing plan Canada Life Assurance (Ireland) Limited and The Canada Life Assurance
Twitter is not a means to an end, but rather a useful element to Company are regulated by the Central Bank of Ireland.
14 The Professional Insurance BrokerYou can also read
