Top tips when choosing an independent advisor

Let’s face it – most of us don’t have the knowledge or experience necessary to navigate the minefield of financial planning, particularly when it comes to risk insurance products such as critical illness, disability, life and income protection.

Even for the more financially savvy, it can be a minefield to try to navigate the interaction of complex financial products. So unless you’re willing to risk your financial future, there are few better suited to the job of ensuring you get your planning right than a professional financial advisor.

“Once you have decided to work with a financial advisor, the real challenge lies in finding the right advisor – someone with the expertise, qualifications, practical experience, service levels and personality to meet your specific needs. That’s why you should try to find someone with whom you can develop a long-term relationship. Only then can an advisor become your financial partner in protecting your family throughout your lives.

The key to finding the right financial advisor is to look for a partner than can help you manage your total risk exposure and financial security – not just purchase insurance,” explains Andre Froneman, product specialist at Altrisk, voted the 2012 Long Term Insurer of the Year – Risk Products (2012 FIA Awards).

The financial advisor you choose can determine the success of your planning efforts. This makes it one of the most important financial decisions you make, so you need to be sure of what to look for. To help you in your decision-making, Altrisk recommends you ask the following important questions when choosing a financial advisor:

Q: Are you independent or tied to an insurer?
A: An advisor tied to a particular insurer will only be able to sell that company’s products, while an independent financial advisor can advise on and sell products from any provider across the market. This allows you to compare a variety of insurance products and decide on the one that best suits your needs.

Q. How much will I pay?

A. When choosing a financial advisor, it helps to understand how your advisor gets paid, because those who secure commissions may apply a different methodology to advisors who work on a fee basis. Financial advisors get paid in one of the following ways:

Commission only: Some advisors only receive commissions from product providers for providing financial services and selling products, such as investments, insurance products, and healthcare funding products.
Commission and fees: Commission and fee advisors may charge you a fee for developing a financial plan for you, and then receive commission when they sell you insurance and investment products recommended in your financial plan.
Fee-only: Fee-only financial advisors usually provide advice or ongoing management of your financial plan. You may find that you need regular advice from your advisor for your business dealings, or you may have a complex financial portfolio that needs regular input, but does not necessarily involve the sale of a product which earns the advisor any commission. However, there is enormous value in your advisor’s time and advice given, and in these scenarios a fee-based system may work best.

Discuss the benefits and disadvantages of all payment methods with your advisor and establish upfront the basis upon which you will work with your advisor.

Q. What qualifications do you have?
A. Ask to see proof of your financial advisor’s credentials. The insurance industry recently formalised qualifications for financial advisors, and you should ensure that your advisor is Financial Advisory and Intermediary Services (FAIS)-licensed. If an advisor is working under supervision it means that they still need to qualify by passing their regulatory exams and will be working under the guidance of a qualified individual. FAIS ensures that there is significantly less room for error and malpractice. As a consumer, you are now better protected as emphasis has been placed on putting client interests first, and ensuring the quality of service and advice.

Q. How do you determine my specific needs?
A. A good financial advisor will look at your needs and potential risks over the long term – assessing everything from your future goals to life cover, critical illness and disability, income protection, retirement, savings, investing, and healthcare funding. They should also look at how your last will and testament interacts with your financial plan.

And remember, just like there is no single product provider that can offer all of the necessary covers in one neat, well-organised and appropriately scoped package, your advisor may also call on specialists to look at specific areas of your financial plan. For example, he may call in a specialist in trusts, or a legal expert to look at your will, or a tax expert to look at the tax implications of your estate. A good advisor will always support the need to bring in specialists, especially with complex portfolios, to ensure that all your bases are covered and all consequences considered.

Q. How will you communicate with me and how often?
Staying in touch with your financial advisor is critical to managing your portfolio and developing their knowledge and understanding of your needs. The regularity with which you meet will depend on your goals. These should be agreed upon with your broker at the outset. If your objective is simply to implement a simple risk insurance solution, such as bond cover and a long-term retirement annuity to supplement your company pension scheme, then an annual update may be adequate.

If you are more goal-driven in terms of your finances – perhaps with aspirations to retire young and wealthy, or to leave your job within five years to start your own business – your needs will be very different.

It is also important to consider “trigger events” that may necessitate action or advice; such as retrenchment, divorce, or additions to the family. Any change in circumstance can alter your risk and should be evaluated as part of your financial plan and strategy.

Q. What claims service do you offer, and what has your claims experience been with different providers?
A. Look for a financial advisor who understands the importance of issues such as service delivery and claims settlement – purchasing an insurance policy should be about more than finding the cheapest rates. Your advisor has a moral obligation to act in your best interests and manage all of your claims on your behalf, ensuring that the process runs smoothly. Find out about their experience with difficult claims or cover disputes, and look at any claims information they may have about different insurers. It’s important to know that the insurer you select has a solid track record when it comes to claims settlement and an ethos of acting in their client’s best interests.

Word of mouth is the best way of establishing your insurance broker’s reputation for service. The role of the financial advisor has become increasingly important as the global economy undergoes fundamental shifts. Now, more than ever, it is vital to know that the person you entrust with your financial future has your best interests at heart.

Article originally published by: Andre Froneman, product specialist at Altrisk

New laws regarding electric fences

New laws could see property owners paying the price if they don’t comply with the latest regulation that requires all electric fences to be installed by certified companies.

If not, an insurance claim could be rejected.

Property owners will also need a certificate of compliance, without it, owners won’t be able to sell their property.

Those who fail to comply with the necessary regulations can be held liable even if the person injured by the fence is a criminal.

“I think it is absolutely crazy. I mean we must try and do absolutely everything in our power to safeguard ourselves and the police don’t have the manpower to keep you safe,” said home owner in a Pretoria.

If a warning notice is not clearly visible from the pavement and the driveway, home owners could face charges.

Installation companies have until October to meet the new regulations.

How does your insurer fare come claim time?

Here’s a cautionary tale for those contemplating trading in their sedans for an SUV  particularly a 4×4. It may be just the vehicles image you fancy, and you dont have any intention of taking it bundu-bashing, but expect to pay a relatively high insurance premium anyway.

Short-term insurance is a highly competitive industry, each of the players trying hard to convince consumers that it provides the best-value premiums and that it’ll look after us in our hour of need: claim time.

But how do the companies shape up when it comes to dealing with claims?

Well, the office of the Ombudsman for Short-Term Insurance (OSTI) has, for the first time, provided some insights into just this, by publishing statistics relating to 51 insurers ranging from Absa to Zurich.

Big, small and in-between, their stats, relating to personal lines, are laid bare in the ombudsman’s 2012 annual report, released in Johannesburg last week.

Among the numbers are the number of claims each insurer received, the number of complaints received by OSTI last year, the number of rejected claims “overturned” by OSTI, and the number of complaints received by OSTI per 1 000 claims received by the insurer.

“What is important is the proportion of complaints to this office relative to an insurer’s share of the total claims reported to the Financial Services Board,” says ombudsman Dennis Jooste.

“The clearest indicator of this is the number of complaints to this office per 1 000 claims received by an insurer.”

That’s because that number gives consumers an idea of how many of that insurer’s clients felt that their claims were unfairly repudiated.

In most companies – 38 – it was fewer than five out of 1 000 claims: many insurers had proportionally so few of their claims end up in the ombudsman’s office that they registered as 0 out of 1 000.

They include Ace, Lloyds, NMS, Old Mutual Health Insurance, Relyant and Vodacom.

So how did the industry’s five biggest players fare, in terms of number of claims received last year?

They are Santam (385 449 claims), Hollard (300 635), Absa (286 956), OUTsurance (284 576) and Auto & General (220 930 claims, which include Budget and First for Women).

Santam’s share of claims that ended up as complaints to OSTI was 2/1 000, Absa’s was 3/1 000, Outsurance’s 2/1 000, Auto & General’s 5/1 000 and Hollard’s 2/1 000.

Eight insurers, all with relatively few claims, had relatively large percentages of their claims end up as OSTI complaints, indicating a relatively high level of dissatisfaction among their clients.

They are:

  • Oakhurst: 37/1 000
  • Chartis (now AIG Insurance): 30/1 000
  • RMB Structured: 25/1 000
  • Saxum: 17/1 000
  • Centriq: 16/1 000
  • Lion of Africa: 15/1 000
  • King Price: 11/1 000
  • New National: 11/1 000

The “overturn rate” – an average of 33 percent for the year, 2 percent down on the previous year’s figure – is a little controversial.

First, the figures don’t only relate to cases that were repudiated by the insurer and then that decision “overturned” by the ombudsman’s office on review because the decision was felt to be wrong or unfair. They include any resolution that resulted in some benefit for the consumer which he or she wouldn’t have got without the ombudsman’s intervention.

Discovery Insure’s Anton Ossip said, for example, that of the company’s nine claims that were finalised with some benefit to the client, one involved a claim for a stolen bicycle which was repudiated because it wasn’t specified on the policy.

“It was the correct decision, but we took too long to finalise the claim, so we gave him a gift voucher to apologise for the poor service,” he said.

Discovery’s overturn rate was 36.84 percent, slightly higher than the average rate of 33 percent for the office, for the year.

“But we are very happy for the ombud’s decision to publish the stats,” Ossip said. “It’s a real game-changer for the industry and will ensure that we all strive to increase our standards.

“No one wants to be on the wrong side of the statistics.”

Speaking of which, bearing in mind that average overturn rate of 33 percent, among the companies that had considerably more of their decisions overturned were JDG (Joshua Doore Group) Micro with an overturn rate of 64.71 percent and Relyant (60 percent).

Both are insurance arms of this country’s major furniture retailers, which sell short-term insurance policies on goods bought in their shops.

Vodacom, like JDG Micro and Relyant, had a small number of its claims decisions result in complaints, but the overturn rate was high – 66.67 percent.

With Vodacom, two out of three cases went the way of the consumer; in the case of Relyant, it was three out of five cases; and with JDG Micro, it was 11 out of 17 cases.

It could be that those policyholders – mostly “mass market” consumers – are generally less likely to contest an insurance repudiation.

Insurer NMS had all four of the complaints against it “overturned” or finalised with some benefit to the insured, as did Sasria and King Price, both just one case each.

Both Renasa (48.9 percent) and RMB Structured’s (49.45 percent) overturn rates were also significantly higher than the overall rate, the former having 47 out of 96 cases “overturned” in some way by the ombudsman’s office, and the latter 135 out of 273.

In all, the office received 9 123 complaints against insurers last year, an increase of 1.7 percent over 2011, and resolved claims worth R113.7 million in favour of the insured, slightly down on the previous year’s figure.

As always, most (48.4 percent) of those complaints had to do with motor claims, followed by householders’ (22 percent) and homeowners’ claims (8 percent).

The office’s core function is to consider complaints about repudiated insurance claims fairly and impartially – and it’s a free service to the consumer.

“We should be seen as a consumer watchdog to ensure that fair play prevails,” Jooste says.

“But in order to maintain our unbiased, impartial role, we should not become consumer activists, nor a spokesperson for the insurance industry.”

To contact OSTI, call 086 072 6890. To see all the stats, go to www.osti.co.za and click on Annual Reports, 2012.

Find out the cost to insure before getting wheels

Here’s a cautionary tale for those contemplating trading in their sedans for an SUV – particularly a 4×4.

It may be just the vehicle’s image you fancy, and you don’t have any intention of taking it bundu-bashing, but expect to pay a relatively high insurance premium anyway.

“Roxanne” wrote to Consumer Alert last week about her insurance dilemma.

“In January I purchased a car and got the financing, no problem.

“At that stage my expense calculation was fine and I was able to afford it.

“One problem was that I had signed the offer to purchase before finding out about insurance. Little did I know that because I got a Suzuki Sx4, it is classed as a 4×4 and the insurance is really high – about R1 000 a month.

“That, along with some personal developments, means I am really struggling with the repayments, so I need to ‘sell it back’ and get a smaller, more affordable vehicle.

“Do you have any advice or could you point me in the right direction?”

Well, no, other than shopping around for a cheaper premium, she’s going to have to sell that vehicle at a loss.

Lesson: Find out what a car is going to cost to insure before you sign the deal.

Don’t just focus on the bank loan repayment figure.

* Wendy Knowler sits on the ombudsman for short-term insurance’s board, as one of four consumer representatives.

The rest of the board is two independent and three industry representatives, and two ex officio representatives – one from the Financial Services Board and one from the SA Insurance Association.

Insurance premiums will escalate says leading insurer

Consumers will have to tighten their already taut belts in 2014 as insurance premiums are set to increase.

This is according to Leon Vermaak, CEO of Auto & General Insurance.

Vermaak says that South Africa’s weakening currency, the number of recent local natural disasters and the increase in vehicle accidents are the reasons behind the rate increases.

He explains: “Auto & General, like all short-term insurance companies, insure their clients against the risk of making a claim. With the increased number of motor vehicles on the road, motorists are more likely to have an accident than in the past. For insurers, repair costs have increased significantly due to the depreciating Rand which impacts the cost of spare parts. In addition, most cars contain advanced safety features and electronic gadgetry – even base model vehicles are fitted with expensive air bags. The price to replace these features and gadgetry is resulting in substantial increases in repair costs for even minor collisions.”

Some people may argue that since their vehicle value is depreciating year on year, their insurance premiums should decrease too. However, Vermaak points out that the cost of repairing a vehicle this year will be substantially more than the same time last year, even though the vehicle’s value may have depreciated by as much as 10-15%. It must also be pointed out that accident claims, where the vehicle is written off, count for less than 10% of all motor claims.

“We update our consumer’s car value on a monthly basis. At premium review stage, customers receive the full benefit of the depreciation in value of his or her vehicle in terms of his or her premium calculation. The effect of this benefit is offset against the factors mentioned above as well as others. Were it not for this adjustment in the value, the premium increase a customer receives would be higher,” explains Vermaak.

Another factor influencing premium increases is that last year, the country was ravaged by unexpected storms and hail the size of golf balls. Auto & General Insurance staff had to work overtime to capture these claims which equated to tens of millions of rands worth of damage.

Vermaak recognises that insurance is a grudge-purchase so it is very often one of the first items to be scrapped from the monthly budget.

Vermaak’s advice for Brokers is, “Remind your customers that not many people have the cash in-hand to replace a stolen car or furniture and appliances ruined in a house fire. Those who think that insurance is an unnecessary cost should consider the costs of not being insured before cancelling their short-term insurance.”

by Leon Vermaak, Auto and General

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