Advice exit challenges brings life insurance opportunities

28 July 2020

The lift in education standards and professionalism in the financial advice community, along with the code of ethics, and the life insurance framework reforms has had downstream implications for the life insurance sector and its customers, according to MLC Insurance.

Speaking at the Financial Services Council’s life insurance summit on Monday, MLC Insurance chief life insurance officer, Sean McCormack, said over the last five years new business premiums had reduced by 60% which had had a significant impact on insurers who were managing the delicate balance of insurance books.

McCormack pointed to the 5,000 advisers who exited the industry and 38 joining last year, and the 950 who left the industry this year with just 12 who joined.

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“We know we have challenges attracting talent in the life insurance industry and I think the advice profession is seeing the very early challenges of attracting talent through as well.

“Not withstanding that challenge from an expense perspective that we all need to work through, I’m deeply concerned with the toll this is taking on the advice community at the moment. There are heightened levels of stress and strained, and many advisers feel their sense of identity has been stripped away through the challenges from the last couple of years and that’s an important conversation for us to be having this week on mental health.

“Without having to sensationalise tragedies, there are various reports of advisers taking their own life because of the stress and strain of the challenges they are facing. This comes back to the availability of good life insurance advice.”

McCormack said there were two opportunities the industry had which were how to collectively reduce the cost of advice or the cost of fulfilment and making the process efficient on the advisers’ end.

“The cost of advice needs to reduce 20% to 25% for life/risk advisers to remain profitable,” he said.

“The life insurance framework review next year is an opportunity to make sure we talk about the consequences of further changes to the remuneration model in place for advisers.

“I’m concerned that if we reduce further or eliminate the commission model, it will further exasperate a further looming accessibility issue. For us as an industry it’s important that we ensure good life/risk advice is not just the domain of the very wealthy.”

McCormack noted that he hoped the higher professionalism of the industry would attract younger university students to pursue advice as a career.

He warned that it was important to get the balance right and not come at the detriment of advisers who had been looking after clients for years and years.




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Mr McCormack, why would anyone either join an industry or even stay in it when the adviser has to "sell " twice as many policies as they once did.
Be responsible for repaying back commissions over 24 months because you and your cohorts at the FSC thought that it was OK to do this in the expectation that you no longer needed advisers, and you could market your inferior products to an unsophisticated public,... direct.
They are "inferior " products because you all offer the same contracts with reduced benefits at an increased price.
There is no product differentiation.

The Royal Commission has shown up how conflicted you all were in the past and yet very little has been done to hold you responsible.
The level of trust between advisers and their clients has been broken by you.
You and ASIC willingly decided, that "churning" was rampant in the industry which later proved to be baseless with the exception of a handful of cases.
The easy solution was for ASIC to prosecute both the adviser and the life company receiving the churned policies.
It was easier though to "nail" the low hanging fruit, .....the whole advisory industry.
The lack of competition, meaning fewer life companies, no product differentiation, would suggest that the trend for diminishing returns will continue because even without Covid -19, this was always going to happen.

As the saying goes,....be careful what you wish for.

These uni students are not going to come into an industry that is flogged like a dead horse in the media, has massive operating costs, can be audited at the drop of a hat and be banned due to a mistake, can be taken to afca even if no proof, cant lend money to buy a book, have to do 60 hours cpd on subjects like how to suck eggs by someone that has never seen a client face to face, have to abide by a totally unworkable code of ethics, have direct general and subsidised advice providers to compete with, have to pay 3 to 4 different masters to supervise them, and have no certianty of income now or into the future. Why would they? The only way planning will be attractive is to fix the above issues. Its pretty simple, but too many vested interests to let it happen.

Bah humbug MLC. Where were you in 2017 when real risk advisers were predicting what LIF would actually do. Oh that's right, your owner NAB was part of the FSC, pushing LIF and assisting ideologues like ASIC to fulfil their desire to ban life risk commissions. NAB, CBA & ANZ had all decided by that time to exit "wealth" and convinced the Govt LIF was a benefit to consumers. Some benefit-premiums have jumped 50% in some classes of life risk in 3 years, and NEW BUSINESS has dropped by 50%. That's unstainable!!

LIF only had one real purpose - to enable the sellers of life companies to tell potential purchasers from overseas that policy acquisition costs would reduce by 50%, 3 years after the purchase. LIF has been self-inflicted injury and advisers have been collateral damage

The most patronising article that I have ever read. Especially from an MLC Executive after the debacle of their very poor implementation of an entirely new online system that has costs me around ten hours per week extra work, just trying to find information, get transactions complete, placating impatient and frustrated clients and sitting on hold to call-takers who often couldnt help me anyway.

CEO of MLC is the current Chairman of FSC. The FSC at that time used the excuse that ASIC were making/forcing them to reduce commission and introduce clawback, they didn't push back, because they planted the agenda with ASIC in the first place as it suited their agenda!

All excellent points from Aleycat. Can I add that insurers have also contributed to the current parlous state of affairs through their handling of mental health claims. Rather than risking any pushback from the mental health lobby, insurers have blithely paid out massive amounts in mental health claims, then passed the cost onto existing policy holders via higher premiums. This has led to massive premium increases for IP policies and a further drop off in demand. Some insurers now include mandatory mental health exclusions in their direct products, but don't allow any sort of optional mental health carve out for their advised policies. Little wonder so many advisers and their clients are abandoning insurance.

LIF should have had just one recommendation....to get rid of upfront commissions. The inquiry into the quality of risk advice, as much of a farce as that was, only found issue with advice where upfront commissions where taken. If we still had Hybrid commission at 80% we would have a life insurance industry that Advisers could operate in profitably. 60% is not viable as standalone advice unless your average premium is $6k-$7k.

The FSC were to blame as much as anyone, they pushed for the commission reductions. Now it's highly likely we'll see further consolidation as the insurers become more and more unprofitable.

that's right. I have no sympathy for these a-holes. they will get what they deserve.

Honestly I just don't write risk anymore. I've done it on both a commission and fee for service basis, but the biggest issue I have is I cant provide a quote in an SOA to a client knowing that its very likely the insurer is going to (again) jack the base premium up shortly into the future.

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