Some years back the government and National Treasury made an impassioned plea to the life insurance industry to clean up its act. As far as they were concerned there were too many bad products with too many confiscatory penalties and high costs where Joe Blogs was not getting a fair deal. In fact, he was often being penalised for things beyond his control and the result was that he was becoming more cynical about saving. Some might even argue that this is one of the reasons that he was not saving sufficiently as well. The call by government was clear – clean up your act or else we will force you to clean up.
We have seen how government is being forced to step into the retirement space as there has been little but lip service paid to the call. And in the voluntary or discretionary space, it seems that in response to government’s request, all that the industry and its “very clever” actuaries has done is to develop ever more complex (and expensive?) products. In fact if the recent spate of new products is anything to go by then there seems to be a proliferation of new (very complex) products as each company tries to outdo its competitors in the quest for “opaqueness”. The over-riding commonality on the new products is “terms and conditions apply”. In fact I would argue that rather than simplify their products, there has been a significant shift away from simplicity and with that, a shift away from transparency as companies seek ever more complex ways to hoodwink unsuspecting (but wary) consumers while at the same time trying to ensure ever increasing profit for shareholders.
The benchmark for investing, in my opinion, is the unit trust – transparent, flexible, simple and in most cases, cost-efficient as well. It does not take a “manual” to explain to clients and there are very few (if any) terms and conditions that apply: you invest money and buy units and they are yours until you sell them. You can sell them at any stage and will receive the (full) market value as at the date of sale. At least once per year you will receive an income payment and you can value your investment at any time. You can also see the charges that relate to your funds. Simple, transparent and efficient!
In comparison to this we have the following fairly new products from the various companies (and these are just the ones of which we are aware). Remember that the intention or aim is to get the average person to save more and that the average person is not “sophisticated” and does not understand complex financial terminology or products.
- Sanlam’s Echo RA with its terminal bonus – it took at least 3.5 full pages over 2 editions of Finweek for them to try to explain and defend the product. In my opinion it is far too complex and conditional for the average man in the street. I would not put a cent into this one.
- Liberty’s Evolve – again more than 2 full pages to try to defend the indefensible. Too many terms and conditions apply. Does Joe Blogs seriously still need endowments in 2013? I would not put a cent into this one either.
- Discovery Invest – the kings of “terms and conditions apply”. We have written extensively about their product before which “promises” significant bonuses at 65 if you keep the product until then…it’s a very big “if” and I would not touch this one.
- Outsurance Life cover Outbonus – again, you will be rewarded with a bonus if you don’t claim and if you still have the product in 15 years time (the cost of the bonus is at around 30% extra to the premium). No thanks!
So my question and challenge to the product actuaries is this:
- Forget the “manuals” that you use to market your products, can you explain your product in a paragraph or 2 to the ordinary man in the street so that he can fully understand what he is buying, what the costs are, what the penalties are and what the realistic return expectations are?
- How much of your mother’s money have you invested into your own product? And if the answer is nil, why not?
My take on the call from government for simpler cheaper products is that the insurance industry has basically held up the middle finger as they desperately seek to defend an archaic and unfair business model. The big stick is coming and when it does they will only have yourselves to blame!
