Consumers simply won’t pay for life/risk advice

8 March 2019

People seeking life insurance are unwilling to out of pocket fees and such a move after the Life Insurance Framework review in 2021 is likely to put expert life insurance help out of their reach, according to new research released by Zurich.

At the same time as a Money Management project has revealed substantial support for the continuing role of Australia’s life/risk advisers from within the most senior executive ranks of the life insurers, the Zurich research has sounded a warning on the consequences of abandoning a commissions-based approach after 2021.

Further, Zurich has called on all stakeholders – regulators, policymakers, financial advisers, insurers and consumers, to collaborate on the framework for the 2021 review saying it is essential to ensure the review is as robust and comprehensive as possible.

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The Zurich research, undertaken by actuarial research house, Rice Warner revealed a significant disconnect between the cost of providing life insurance advice and the willingness of consumers to pay for that advice with only eight per cent of those surveyed indicating they would be willing to pay more than $1,000 out of their own pocket.

It found that, by contrast, 93 per cent of advisers said they would need to charge in excess of $1,000.

The research also found that almost 30 per cent of consumers said they were not willing to pay a fee at all, a finding which illustrated the size of the challenge ahead.

Commenting on the research, Zurich Life and Investments chief executive, Tim Bailey said the research confirmed the experience observed in other countries that consumer willingness to pay out of pocket fees for life insurance advice is very limited.

“To the extent that demand for life insurance generally coincides with major life events, for example taking on major debt such as a mortgage, or the birth of a child, we often see the paradox that the time when cover is most needed is also the time when household finances are most challenged,” he said. “Mandating an out-of-pocket fee to people in such circumstances, from 2021, is likely to put expert life insurance help out of reach at the worst possible time for them and would likely see people with inadequate or inappropriate cover, or worst still, no cover at all.”

Bailey said that, in these circumstances, a major priority for insurers and the advice profession, in partnership with ASIC and government, should be to help create a consistent and robust evidence base to be used by the many stakeholders who will shape the sector over the coming years.

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Just goes to show that a RC won't deliver just outcomes - for anyone.

I disagree, Lawyers are onto a winner!

It's funny to see how the greed of the life insurers is coming back to bite them. They pushed the churning myth to push an agenda of reducing upfront commissions, which in turn they pocketed and did not pass onto to the clients. Now they have already seen a reduction in their insurance products being sold and know that if commissions are completely removed they will have no new business at all. The direct insurance markets was all but killed by the royal commission so they know this isn't a solution. So advisers are now asked to work for less, clients are charged more for insurance and it is only when insurers feel some pain that it is an important issue that everyone has to work together to fix.

Well said. Perhaps all those who believed that removing commissions would help the customer should now stand up and be prepared to take some responsibility? Will never happen - they will have long moved on.

Not only were the commissions cut and the benefit NOT passed onto clients we have been fielding outraged calls about the INCREASES to premium.

If I were a 'numbers' guy I might ask "Where did the money go?"

The Zurich white paper is excellent. It's finally nice to see someone putting forward some high level material arguing the case on our behalf. If only our industry associations could step up and do the same.

The insurers were making easy money a few years back, now they are struggling to get the new business targets. Well maybe you should have come out and looked after us during LIF! I say sucked in. I have never had some many calls from BDMs, oh Im calling to see how I can help you in your business...really? How prey tell will you help me ? Oh lets look over the client base see what opportunities are there, yes I havent done that...geezuz. All this help for my business from all these BDMs, but the thing is its all just talk, I dont want a BDM I want reduced premiums for my clients.

But Zurich, you pushed the credentials of a so called expert in Perth who advocated that charging a fee for service in relation to Life Risk advice was just a matter of all of us being able to sell "The value proposition".
It was a crock !
Seriously, you like all members of the FSC are so conflicted, you now have to reap what you've sown.
All of you should have stood fast against the LIF legislation and supported your distribution networks.
You will now pay the price for your greed along with the advisory industry

I find it interesting the research on this question never seems to go into why people apparently won't pay a fee, or at least it never seems to be reported.

Could it be because the industry has conditioned people to think they don't have to pay? Could it be a lack of trust of insurance companies and brokers?

No, it couldn't be, as commissions are at the heart of those reasons and we all know commissions are the solution, not the problem. After all they are working perfectly well for everyone. Well except for the clients and they don't matter.

How are commissions not working for clients??? All companies pay the same rate and risk insurance is most needed at times of min cashflow.

Def hurting the consumer. If you believe that then you don’t know how it currently works really well for consumers and LIF works really for life offices.

Advisers...well they get screwed as usual

The "all companies pay the same rate" nugget rolled out again. Your honour, I had the same conflict regardless of which product I sold, making everything OK. Sounds like a good defence.

I also like the cash flow reference. I nearly fell over when I heard the mortgage brokers claiming clients couldn't afford $2,000 to pay for mortgage broking advice on their multi-hundred thousand dollar loans. I wonder if it dawned on them that maybe the clients couldn't afford the loans either. Maybe if you rebated the commission they could afford to pay your fee.

Commissions have been part of the fabric of selling insurance for decades. They are the source of all the problems, the onerous compliance and all the distrust of advisers. Despite this, somehow commissions are thought by many to be the solution as well. You'll have to forgive me I don't come from that illogical world.

The RC showed how well things are currently working for consumers. Lucky they weren't doing calculations on commissions for no service, that would have added a couple of billion for the headlines.

Us poor advisers getting screwed again. A pretty common theme for comments on here. Maybe what we are seeing are changes proposed to stop advisers from continuing to screw others. If we were really interested in making things better for our clients we would be lobbying to make sure life companies reduced their premiums, rather than trying to protect commissions.

Nice motherhood statements, thanks for that. Now for some reality. Answer this very simply question. How does removing commissions help clients? We have already seen that the reduction in upfront commissions has been pocketed by the insurers at the same time they increased insurance premiums. A clear middle finger to clients, ASIC, the Government, advisers etc . The insurers think they are untouchable. Are you so naive that a lobbying effort will get insurers to reduce their premiums? Thanks for the Friday funny.
Also stop using the RC as an excuse for the removal of commissions. The only time this showed an adverse outcome for clients was high pressure selling direct insurers, paying call centre people in place of advisers. The Zurich study shows clients won't pay a fee, even at a level where adviser lose money to give, document and implement the advice. Yet you say that's the advisers fault and the clients should just pay the ever increasing cost in providing advice? I disagree, you most certainly do come from an illogical world.

What has just had a baby got to do with mortgage commissions? stick to the topic please.

You started with "....same conflict regardless of which product...". What exactly is the MASSIVE conflict here, the client needs insurance, you get paid the same no mater who you recommend, you give inappropriate advice (too much or too little) you get sued, sanctioned or in front of tribunal. You seek to get the best rated policies for the cheapest price and tax structured in the most beneficial way. Can't see any client interest here!

No more commissions on cars, houses, general sales - epitome of evil the lot. Wealth is completely different and rightly should be commission free but risk is not. It's a complex and difficult, unless you think it's like getting a green slip?

your quote "...interested in making things better for our clients we would lobbying ...." like they reduced premiums when stage one LIF came in, they rose 10-12% in the next year. Good luck with your campaign!! We'll get rid of commissions and the life offices will keep the lot. You from neverneverland?

Again you "...rebate the commission to pay the fee.." what's the difference in this series of transactions if the rebated fee gets paid to the advisers? Logic you claim?

Yet again "....can't afford $2,000 to pay for mortgage broking.." the question wasn't could you afford? It was "would you pay?" Resounding answer from Joe public is no. So they all trudge off the bank, get slugged with higher fees and higher interest rate margins as lender competition will collapse. Are you sure you are for the client or are you a stooge for the banks and like offices?

The RC showed us that the Commissioner doesn't understand the private advice industry at all. Yes the banks know how to ream people, industry funds are immune from criticism and understanding what is really happening from some beak who's never spent a day of his life in a real advisers office. Just confirmed what we already know, most in the LAW have no no concept of the real word.

RC into Gyms - fee for no sweat. RC into pay TV - fee for not watching. RC into the internet - fee for not using it. Seriously. What nanny state do you advocate???

I'd like to see an RC into lack of personal responsibility and ignorant idealists who don't get the damage they do until it's too late.

You stated this......"Maybe if you rebated the commission they could afford to pay your fee."
Now, if commissions are not paid by the provider, you are aware the customer will have to pay?

Dear Jaronrichiesmit, Can I ask how much you paid for insurance advice?

The future of risk will be consumers direct to life companies, maybe with a referral fee paid to us for the needs analysis. I'm astounded at the difference in underwriting requirements when clients go direct to TAL versus coming through me. One of my golfing mates is way too short for his weight, BMI is around 38-40 at a guess, other than that fairly healthy I guess. I asked my BDM for a pre-assessment, unsurprisingly he was loaded. He applied online through TAL, they organised the medicals and he got through at standard rates. Amazing what client outcomes can be achieved when the life company can keep 100% of the premium.

Meanwhile I just ran quotes for a 52 y/o non-smoking bookkeeper on $60k a year- $850k life TPD own occ, IP and $200k Trauma, $780 per month is the best I can find! Absurd, who would pay that? We've basically thrown insurance work in the bin.

Felix you should report this example to ASIC showing a company changing terms and conditions of a policy offer depending on way the clients gets the same cover... makes me wonder same think I have seen with SunSuper insurance (AIA) do a quote with AIA direct for the same cover and it costs more

Hello....Hello?????.....calling Kelly O'Dwyer......BEEP.......sorry Kelly is unable to take your call right now.

The major issue is that none of the individuals who are responsible for setting policy around insurance commissions etc have any depth of understanding of the advice process and the complex nature of " getting it right " for the clients financial well being when or if a claim arises.
The responsibility placed on risk advisers to ensure the very best possible outcome for the client when they need the insurance to pay is serious and it is of paramount importance.
A good adviser and good advice strategy can assist in limiting the potential for a poor or substandard outcome.
The vast majority of advisers really care about their clients well being and their client place an enormous level of trust and confidentiality in that relationship.
There is a major divide in this country between what advisers really do and the perception of the legislators and influencers that insurance is just another commodity like bread and milk.
The commodification of the insurance space has set the tone that Life Insurance and other forms of risk insurance is just simple, easy and quick.
Simple , easy and quick invariably results in the purchase of a product that either may be substandard, inferior or full of surprises at claim time.
Whilst the adviser process does not have to be long, slow and complicated either, the advisers role is usually crucial to the best client outcome.
The ASIC 413 Report determined that when the then Hybrid model of charging commission at 80/20 was implemented, the advice success rate was 93% of the files assessed.
There was absolutely no evidence that supported the case that reducing commission levels to less than that model resulted in a higher advice success rate than the 93%.
The LIF outcome was based on no evidence that reducing the initial commission rates to 70% and then 60% would result in enhanced consumer advice outcomes, but was implemented anyway because of immense pressure from the Financial Services Council and Kelly O'Dwyer's close relationship with them and her inability to clearly understand the best method of providing insurance advice in combination with appropriate remuneration for those giving the advice.
It is now even more concerning that Kenneth Hayne appears to have even less appreciation for the often lengthy and detailed process advisers are subject to when providing high quality and compliant insurance advice in their clients best interest.
The LIF should be scrapped and the original Hybrid model be re-instated as the preferred model which will work best for all concerned.
Managing policy churn by any advisers is easy and this responsibility should be the insurers and the licensee.
Repeat offenders would be limited to Level commission only and if the practice continues, the business would be rejected by all insurers based on an industry wide Memorandum of Understanding signed off by all Life Insurance companies.

What a surprise! Same FSC member companies who conned government into the LIF by not supplying correct lapse data. Same companies trying to push advisers through "training" to "help them" take less commission and charge a fee. Same companies screwed by the Royal commission for dodgy direct business. Same companies reducing new business rates whilst increasing existing customers and trying to create a churn issue that was not there in the first place. Same companies suddenly needing advisers again. Same companies crying over new business reductions. Same companies not wanting to admit the LIF was a mistake. Same companies realising that only commissions for risk business work.

Same old, same old. You guys just don't want anything to change. You don't/won't/can't acknowledge there is a problem and don't/won't/can't see that life products are just another product. Stop playing the victims and move on.

Private health insurance products are complicated, expensive and important yet how many of you sell these to your clients or provide any input on them at all. The number advising on home and contents insurance is going to be very similar. If you don't think those examples are relevant, I'd suggest they are as this is where life products are going to end up too.

The value is in your advice and service, not the product, yet you insist on being paid for the product. That approach worked well for stockbrokers until clients found out they didn't need them to access the product. Clients go direct on private health insurance because they don't need you and the same for home and contents. How long until they realise they don't need you for life products either?

The argument that client won't pay is promoted by those too scared to try and/or with a vested interest in nothing changing. Plenty of advisers do charge a fee and clearly plenty of their clients are happy to pay it.

15-20 years ago no one would pay for financial planning advice. Now its standard practice and the fees aren't trivial. Some advisers moved to fees voluntarily, some had to be pushed. I get the feeling many on here will need to be pushed.

Who are you to tell us how to operate? Just as you dont believe in commission, dosent mean the clients arent happy for us to receive them. Can you get your nose out of our business and go elsewhere to spout your rhetoric? Pushed indeed, you have no idea of how the real world works in planning, it seems you are either a choice employee or an asic employee or similar, you must be someone that has never actually had a small business or dealt directly with clients. Clients love us, its hard for people like you to handle, but they do and they dont give two shakes about us getting the commission. Stop being holier than thou, get off the high horse, and speak to some clients, they will tell you the same thing.

Why are you so keen to have the client pay and the product provider no longer pay?

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