LIFE insurers will take a hit to the bottom line if the delayed Financial Services Reform Bill (FSRB) is resurrected.
But they are still welcoming the changes expected to be brought about by the reforms, according to AXA distribution executive Peter Driscoll.
Speaking at the recent Rice Kachor Risk Seminar, Driscoll explained that life insurers are bracing for increased costs and reduced revenue in the wake of the reforms.
“But in the long-term, I think it ensures the long-term viability of the industry,” he says.
One of the biggest sources for loss of life insurance sales will be the end to the multi-agent structure for life insurance advisers. Driscoll says multi-agents are the primary sales force for life insurers, making up at least 50 per cent of sales at AXA.
Multi-agents will be forced to become proper authority holders under the new regime or get out of the industry altogether, Driscoll says.
“Many of the multi-agents are threatened by change and will choose to simply leave the industry. We shouldn’t forget that these advisers are some of our biggest writers and there is no-one coming through to take their place.”
Also, the onus on the licensee of advisers under the new regime mean that a number of life insurance company owned dealer groups will embrace its biggest business writers as proper authority holders and “bid a tearful adieu” to the others.
Revenue will also be lost by the increasing onus on advisers to improve the documentation at the point of sale. Advisers will have to spend more time filling out documents, which means less selling time.
There is also increased compliance costs for life insurers due to the increased point of sale disclosure requirements because they will need to more thoroughly supervise the paperwork of their advisers.
The vexed question of commission disclosure will also put pressure on margins. Driscoll says commission disclosure will send more life agents away from the industry But, at the same time, more scrutiny on commissions may attract those advisers who have shied away from offering life insurance products to their clients due to the perception that it was more about sales than financial advice.
General insurance groups also feel the pinch
While life insurers may feel some pain in the short-term as a result of the Financial Services Reform Bill (FSRB), general insurers may also find the going tough in at least one of their product lines.
AXA distribution executive Peter Driscoll says personal accident and sickness policies sold to self-employed business people may become extinct after the reforms are enacted.
Driscoll says the new regime’s increasing focus on “reasonable advice” may find the products out of favour with general insurance agents and general insurance companies. Many will favour transferring the clients to income protection policies manufactured by their parent company’s life insurance operations. He says this could be “one of the few wins” for life insurers out of the FSRB.
“Will general insurers be comfortable authorising agents to sell a product that has some real limitations and may not genuinely be the ‘best advice’ solution for the client? I suspect not,” he says.
“We may see some restructuring of agency agreements in the general insurance industry, which could also give some momentum to a switch to providing income protection via life products.”
