Flexible policy bucks the trend

Getting excited about life insurance may sound like an oxymoron, but as I sat through the presentation of new long-term insurance company BrightRock, that is exactly how I felt.

Finally I had found the life cover for which I had been waiting. As I walked out of the presentation, I called my adviser and told her to look into it immediately.

What BrightRock has recognised is that the insurance cover you need today is in all likelihood not the insurance you will need in 20 years’ time. Yet, with traditional life-cover products, you buy cover today that is priced for you to hold until you die at your estimated mortality date somewhere in your late 70s, even if you do not need it.

Right now, my liabilities are high. I have a hefty mortgage and two young children and I am an equal breadwinner, so my insurance needs are large. In fact, my adviser told me that I am running a “shortfall” of about R2-million on my current insurance, but I have no idea how she reached that figure or what exactly my needs are.

What also frustrates me is that in the next seven years my mortgage will be fully paid (if all goes according to plan), my children will have only 10 years of dependency left and my savings will have doubled, which means my insurance needs will have halved. What I need is a product that allows me to increase and decrease my insurance needs as required.

That is exactly what BrightRock provides and, in so doing, it reduces my cost of insurance.

What BrightRock has done is to quantify your specific needs and then calculate a premium against each one. Rather than giving you some arbitrary reason for why you need cover worth R5-million, BrightRock breaks it down to what you need to cover each month, such as your mortgage, household expenses, children’s schooling and medical aid. Then it provides an individual premium to cover each of these costs. Now I know exactly what expenses I need to cover and how much each need will cost. If you cannot afford all the premiums, you have a clear idea of where the shortfall lies and can therefore prioritise cover and calculate how your current savings and pension would address it. In short, it allows you to plan effectively.

One of the ways BrightRock is able to cut premium costs is to base the cover on how much longer you have a liability, such as your mortgage. If you only have 10 years left on your mortgage, it will quote you for life cover for only those 10 years. As a result, the premium costs are driven down significantly, because the risk of you dying in the next 10 years is significantly lower than the risk of dying in the next 30 years, which is typically how a traditional insurance product would be priced.

About 90% of insured consumers opt for an age-rated policy because of its affordability. Because the policy is priced according to your age, it is cheaper when you are younger but then escalates aggressively as you get older. By the age of 50, it starts to become unaffordable, so you cancel the premium, hoping that by then your mortgage is paid off and the children are off your hands. Basically, you take out insurance with the full understanding that it will become unaffordable and that you will cancel it in the future.

“These insurance products aim to price you out of the system,” said Rob Rusconi, non-executive director at BrightRock.

By insuring through BrightRock, I can take out the cover I need today. And as my mortgage is paid off, my savings increase and the number of years I need to provide education for my children is reduced, I can cut my cover and my premiums further.

However, if I face a major life event such as a child becoming disabled and a dependant for life, or I decide to buy another property and take on more debt, I can ramp up my cover again with limited underwriting. Each year, I am able to sit down with my adviser and reassess my needs. Under traditional policies, changing cover would incur additional costs because the policy would have to be cancelled and a new policy issued.

The product will be available only through independent financial advisers and at this stage is not offered directly, but a client can choose for the commission structure to be either upfront, pay as you go, or a combination of both. Keep in mind that upfront commissions always cost you more because they have to be funded through the policy, incurring interest costs.

At the end of the presentation I did wonder: “Is this too good to be true? What am I missing?” BrightRock has been partnered with and funded by insurance group Lombard Life, which has also provided the licence. Rusconi, who is also Lombard Life’s general manager, blew the whistle on the costs of the pension-fund industry and is viewed as having credibility in the industry.

Founders include former industry players such as Miles Japhet, who was managing director of Hollard Insurance Group, and Suzanne Stevens, formerly at Discovery Life.

The company is underwritten by mega reinsurer Hannover Re and regulated by the Financial Services Board, which requires it to have enough reserves to pay out all policy holders should it close shop.

The one concern is that it is a challenge to compare quotes, because no other life insurance company offers a similar product. What my quote did, though, was show exactly where my shortfalls lay and how it would impact on my planning. I need to reassess where I want to beef up my cover and which liabilities my current savings will cover, but I feel more in control because I understand exactly what is being covered.

The science behind this product is not really new. It is just the way the company has packaged the various existing insurance options into one cover to provide flexibility and make it more accessible and easier to understand.

Clients like to have a full understanding of what it is they are buying and why, which is something BrightRock has achieved.

There is no doubt that this ­product is going to deliver a good shake-up in an insurance industry that desperately needs it.

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Maya Fisher French
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