Mike JacksonCEO PPS Insurance

If you had to choose, what do you think are the most significant challenges

facing both life and medical intermediaries during 2007?

And opportunities, obviously being a pivotal year, it must surely bring

opportunities with it?

Any other opportunities that you can mention aside from that?

brokers face going forward maybe, lets add a fourth one there…

4. Challenging Broker Question #4 'Should I be a broker-that is number

one? Should I even continue being a broker?'1. Let’s talk about the life industry

Maybe I should just become an agent of a company because a broker The number one challenge has to be adjustment; the intermediary out there

today has onerous responsibilities. He's completely responsible for his own has got to adjust to a different (insurance) world, and that is quite frankly

FAIS compliance. He is completely at risk as a broker, he has no backing the biggest challenge they face. The intermediary has lived on upfront

from the company, he's on his own out there. He faces an ombud who can in commission since 1977, now that's been regulated and the whole

fact rule against him, who can come and not just take his house away, but commission regime is changing. Intermediaries used to be rewarded for

all his assets too. If the FAIS Ombud thinks you've given the wrong advice volume; and they were rewarded for it upfront. Now we move onto a whole

that caused a client financial loss, you are personally at risk for that new regime where we are rewarded for on-going service with only a portion

financial loss. As an agent of a company, giving bad advice results in the rewarded for upfront behaviour. This means that now the intermediaries'

company taking the rap. So it is a key decision, do I continue acting as a cash flow could take a major knock. So clearly the number one challenge is

broker, acting alone out there, or do I actually become an agent of another adapting to the new commission regime. A new system where

company and change my whole relationship going forward? And if intermediaries are paid for long term service, and not just their upfront

proposed regulations do come about, whereby the only way I can earn behaviour, is bound to hit them in their back pocket. For most brokers it's

money as a broker is by earning fees and not commission, then what am I predicted that over 20 – 30% of their income could be affected this year.

going to do? Can I survive on fees only, can I survive without earning

commission. Those would be very critical questions as we go forward. So I 2. Challenge number two would be how do I change the way I do business? would say this is a pivotal year for the intermediary; for the broker it's a Typically brokers will be asking themselves this: how do I change my very pivotal year as they decide how they are going to go forward. It's business model? I have staff, I have employees who depend on me and I certainly the biggest challenge facing brokers in the last 30 years.have to change my business to adapt to this new way of earning. Clearly my

staff will have to adapt too, to a longer term view. No longer can my people

gear or focus on a short-term 'Hit-and-Run' relationship. Everyone in my

organisation has to change his or her behaviour to offer a more formal

Correct. The right broker will grasp the changes and will really understand service. Short–term income rewards short-term relationships, a practise

the opportunities as they see their way forward. Making the right that cannot continue under the new rules.

decisions is critical right now. But for the right broker, of course

opportunities exist; it's going to be a huge break for them. Unfortunately 3. Intermediary Challenge number three would be: 'Do I continue selling

many other brokers may fall out of the industry, there will be failures, the same products or do I change my portfolio completely?' people who would not be able to adjust, people would not be able to adapt, The product that I've been selling; should I now move from risk to so that effect would be mean, quite frankly, more business for those who investments? Do I move back to risk because the new commission regime is remain behind. So the size of the cake is still the same, it's just that there actually more about investments than about risk? Business Insurance is will be fewer people to service it.sexier, it sounds nicer. What I am talking about is investment broker, no-

flop insurance, where in fact insurance sales pay the bills. Insurance

currently is paying high rates of commission, so do I actually now split my

I can mention a major challenge, which is how we service the bottom end practise into part insurance, part investment? That way I can force a

of the market. Every broker would be gravitating towards the top end of significant split between risk business and people who specialise in risk

the market, that's going to leave a gap at the bottom end presenting a big business and investment business and people, who specialise in that. Do I

challenge, but also a big opportunity. The difficulty is going to be finding a employ other people just to specialise in one or the other sector? These are

business model that enables you to service that end of that market. In the tough questions.

U.K, when new regulations came in, most brokers abandoned the bottom Ja, so I would probably say those are three of the big challenges that

Mike Jackson, CEO of PPS Insurance,

shares his industry viewswith RISKsa readers

15RISKsa April 2007

With more than 30 years experience in the industry, Mike's comments make for interesting reading:

of the market entirely, preferring to deal only with the wealthy people. The

average Joe may get left out of the loop because brokers can't make money

out of them. But the average guy still needs to save money, still needs

advice, still needs all of those things, so the real challenge is how does the

average person, 'Mr John citizen', get services in this new model going One of the biggest challenges from this market is to stop it from spending forward. unnecessarily. It is a spend and not save culture developing here, its all

about instant gratification. Not without reason, people in this segment

have for many years been denied many of the luxuries that are now

available, so it's all about here and now. I must have it this year, this

month, today -it's about a need for instant gratification, it's about

The really professional brokers - who provide proper service - their visibility, it's about spend, spend, spend. Our whole industry, on the other

reputation has not taken a big knock. We often ask individuals, 'what are hand, is about save, save, save. Our industry has to get the message of 'put

brokers like? Are they a bunch of crooks?' And you tend to find that it is a off the pleasures of today for the benefits of tomorrow'. It's not a very nice

generalisation that their reputation has taken a knock. If we commonly message and people don't want to hear it, especially in the emerging

ask about individuals, you normally get good feedback about their brokers. market. Net spenders are not net savers so we have to bear that in mind.

In fact we at PPS launched a short term business model and we find the The emerging market has good cash flow but no balance sheet. Cash flow is

biggest resistance is the clients don't want to give up their brokers. They not wealth, a strong balance sheet is wealth, and you can only build that up

say “listen here, I had an incredible service from Jo Bloggs for 20 years, over a long period. Unless you win the lotto, no one builds up a balance

I'm not going to join PPS I'm going to stick with Jo Bloggs”, sheet overnight. If you take a short-term view you are never going to be

We then say: “But we will give you a 20 % discount” wealthy. If you want real wealth with a strong balance sheet you have to

The client will still be adamant: “no, I'm sticking with my broker, I'm very take a 20 –30 year view, starting with a saving plan. It is really not a very

happy with him”. sexy message. Especially if there is a flashy BMW over there, and sexy

So I think it's worth recording that generally speaking people are loyal clothes there, all easily available on credit. That is the basic message we

to their brokers, they wouldn't be loyal to someone they feel they are need to spread around the whole country to turn us from a nation of Net

getting bad service from. So I will say that those good, professional borrowers to a nation of Net savers.

brokers have a great reputation, but the press is a different story, I hate to

say it, but the press have been the making of the 'bad reputation' in many

cases. They just love to quote the individual broker who ripped someone

off. Because that's news, you know? The Sunday papers, they will tell the I think there is a niche for 'direct' selling, it doesn't compete with the story about this old widow who was ripped off by her broker - and of course broker though. It is a very different kind of service. I doubt it will ever that is bad and that leaves your heart broken for her. But the fact that 99% reach more then 10% of sales. If you need advice you go to a broker, if you of brokers provide good service and do great work in helping their clients want to buy something quickly, you pick-up the phone and can speak to the retire well, do you think that makes the news? 22-year-old at the call centre. I don't think it will change much, especially

But the thing for brokers is to continue to be professional and provide in the life business. It's different with short-term insurance and when you good service; a good reputation takes years to build up and can be are buying a commodity, like a car. Then you can pick up the phone. But if destroyed overnight. it's for savings and investments and anything similar – you really do need

to sit down and get advice.

I would say competence is number one; you can have all the integrity in the

world, but if you don't have the competence you are useless to me. So you've Three years – started 2003 – so 3 years and 5 months got to have absolute competence, be knowledgeable to companies,

knowledgeable to products and have complete independence of thought.

You cannot be seduced by any company, you must have complete Absolutely! Enjoying PPS, it's a very exciting company with huge independence of thought and you must make your own assessment and your opportunities. We are expanding the company, changing the way it own judgements about values. Don't believe what the companies tell you, operates, getting our members more products and a bigger range of you have to be absolutely independent and your clients need to know that services. We are also launching a new investment company.you are autonomous. He has to know that you are not seduced by anyone in

the company. If you recommend a particular company you have to believe

in that company and that it is the right one. What you are looking for in a I'm an absolute car fanatic - sports cars, classic cars - all kinds. I also have broker is that total independence of thought. a home gym – a very exclusive gym – I use four times a week, I always

have. I also like to go the bush for 2 or 3 days when I can afford the time

off.I think it has a superb future. People want independent advice.

I think you have to be holistic; you need to become holistic then you can

control the whole relationship – that's all about being part of the loop. If I think investment counselling; being a really solid sound investment you're out of the loop you lose the relationship. If you outsource your councillor to people. That is very important - it is a volatile market going relationship to other people, you're very quickly off the list and out of up and down everyday. The average Joe doesn't know what to do next. So mind. You have to be in your clients face, you have to talk to him and be you need quality independent investment counselling. trusted by him. If you don't have the strength of relationship, your

expertise and everything else don't count. The busier the person, the more

he is going to use a broker – he doesn't have time to do those things himself.

emerging market is growing at a whopping rate of nearly 2 million people

each year. The majority of these Black Diamonds have never enjoyed the

benefits of insurance. What are some of the challenges in educating this

market and innovations have been made?

The long-term industry has taken a bit of knock in terms of their

reputation, what are some things that a broker can do to re-establish his

reputation amongst his clients.

Your outlook on direct life insurance and the impact this will have on the

market?

What makes a good broker?

You've been behind the PPS helm for 3 years now.

Are you still having fun?

What do you do to unwind? (Hobbies, interests)

Does a broker-based model have a future in South Africa?

Message to RISKsa readers (on the industry, markets, opportunities etc)If a broker wants to specialise is there any particular niche in the market

that presents an opportunity for brokers?

The UCT Unilever 'Black Diamond' survey conducted in 2006 says that the

16 April 2007 RISKsa