1. Risky Regulation or Regulation Rewards? Risk Masterclass 2011

2. AGENDA: 2 distinct concepts; Risk IN Advice, &, Rewards FROM Risk Fit for Purpose? Personal Responsibility Third party research Why is this appropriate? Your analysis? Their needs? Key checkpoints New Rewards? Changing market demands New opportunities Manage client expectations Best practice = $...but… Have to think differently…

3. Risk IN Advice FAA & Church case highlight responsibility issues 3 rd Party research a defence? (Delmenico v Brannelly & Anor; 2008) (FOS Determination 18959; 2009) (Aust) Key regulatory test: “why is this advice appropriate?” Identifying client needs is important Prioritizing client needs is essential Determining “most likely” right solution is the art

4. Working Example: some DI options Scenario 1: Salaried (PAYE) Manager earning $90,000 gross breaks his legs in a ski accident. He is unable to work at all for three months, then returns to work at one-third capacity (and pay) for a further 3 months, before returning to work in full capacity. Pre-disability Income $90,000 ACC Benefits$72,000 Disclaimer!

5. Who Pays What Monthly Benefit? (with ACC Paying $6,000/mth) Totally Disabled (first 3 months) Fidelity Indemnity $5,625 Fidelity Agreed Value $4,125 AXA Indemnity$0 AXA Agreed Value$0 Asteron Indemnity$0 Asteron Los of Earnings$0 WHY? Fidelity “Specific Injury Benefit” with no offset aims at this type of claim. Partially Disabled Fidelity Indemnity$3,125 Asteron Indemnity$1,000 Asteron LOE$750 Fidelity Agreed Value$125 AXA Indemnity$0 AXA Agreed Value$0 WHY? Fidelity Indemnity has AV wording for first 6 mths of claim.

6. Change the scenario though… Scenario 2: The same Salaried (PAYE) Manager earning $90,000 gross had a heart attack. He is unable to work at all for three months, then returns to work at one-third capacity (and pay) for a further 3 months, before returning to work in full capacity. Pre-disability Income $90,000 ACC Benefits$0

7. Who Pays What Monthly Benefit? (with NO ACC Payments, but $2,500/m personal earnings) Totally Disabled (first 3 months) AXA Indemnity$5,625 Asteron Indemnity$5,625 Asteron Loss of Earnings$5,625 AXA Agreed Value$4,125 Fidelity Indemnity $5,625 Fidelity Agreed Value $4,125 WHY have AXA moved to top place? Specified Sickness turns it into a 6 month claim, regardless…. Partially Disabled AXA Indemnity$5,625 AXA Agreed Value$4,125 Asteron LOE$3,750 Asteron Indemnity$3,750 Fidelity Indemnity$3,125 Fidelity Agreed Value$1,625

8. Elimination, not “selection” Client situation Client Priorities Biggest risks? Strategy – AV, Ind, LOE, Hybrid 3 rd Party research Supplier analysis (subjective) Portfolio “fit” Policy Features Key definitions: – Total disability – Partial disability – Advance/arrears payment – Sabbaticals – Reinstatements – Other Income – Offsets – Insurable income – Tax position clause

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

10. Rewards FROM Risk Consider a client engagement as a project with 3 distinct components: 1.Planning 2.Implementation 1.Monitoring & Servicing

11. How we work… PLAN

12. IMPLEMENTATION How we work…

13. PLANIMPLEMENTATIONMONITORING How we work…

14. PLANIMPLEMENTATIONMONITORING $ (Fee) How we work…

15. PLANIMPLEMENTATIONMONITORING $ (Fee) The Client can stop here How we work…

16. PLANIMPLEMENTATIONMONITORING $ (Fee) $ Commission and/or Fee Agreement The Client can stop here How we work…

17. PLANIMPLEMENTATIONMONITORING $ (Fee) The Client can stop here The Client can stop here How we work… $ Commission and/or Fee Agreement

18. PLANIMPLEMENTATIONMONITORING $ (Fee) $ Renewal Commission +/- ? The Client can stop here The Client can stop here $ Commission and/or Fee Agreement The Project with client choices

19. When implementing change…. FAILURE EFFORT little late TIMING

20. WORKS FAILURE EFFORT huge little late TIMING

21. WORKS FAILURE WORKS EFFORT huge little late early TIMING

22. WORKS ☺ FAILURE WORKS EFFORT huge little late early TIMING

23. Final Thought…“The Artistic Calling” Professional a. Pertaining to a profession or calling; engaged in a profession; engaged in an artistic calling as a means of livelihood Professionalism n. The principles of professional persons

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