Life commission cap changes threat to advice businesses

22 November 2019

One of the biggest threats to advice businesses and consumer access to life insurance advice is further changes to life insurance commission caps, according to ClearView.

Pointing to Investment Trend’s latest planner risk report, ClearView’s general manager strategy, Greg Martin said there was a particular need to ensure sustainable premiums and stable life insurance commission rates.

“More than half of all respondents listing additional caps or the end of life insurance commissions as their greatest concern,” Martin said.

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“This reinforces proprietary research conducted by ClearView earlier this year which indicated that additional changes to life insurance commission rates would have a devastating impact on advisers and their ability to advise many consumers.”

Martin noted that advisers had already shifted their focus to more affluence clients to “break even” when giving personal advice.

The Investment Trends report found that the break even point for personal advice would increase to $1.03 million of cover per client compared to traditional levels of around $600,000 of cover per client.

The research also found that almost 40% of advisers reported a sharp decline in profitability in the past year, up from 18% in 2018.

Investment Trends said compliance obligations and the associate administration burden, followed by rising premiums and the flow on effect of the Royal Commission were the biggest challenges for advisers trying to grow their risk advice.

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One key reason is the cost of preparing a full statement of advice for risk insurance (in addition to sitting 8 University units simply to sell risk cover] it is simply NOT viable for a family say under age 40. There needs to be a serious rethink about the red tape being imposed on advisers.. When the red tape stops young families obtaining the cover they need, its time to review the red tape. The Red tape was designed for the system 2 decades ago, not for today.

Clearview and all of the other companies under the guise of the FSC were the ones who corruptly orchestrated these commission rates thinking they would have a huge boost in profit and advisers would just suck it up.
The same companies are now seeing new business rates drop by as much 30 - 65% and are rightly starting to panic. They can only go on raising existing customers premiums for so long and / or cutting staff.
60 / 20 with a 2 year clawback doesn't work. WE LOSE MONEY by writing new business and customers don't like paying fees. New business will get even worse from next year. Lapses are increasing because of the excessive premium increases. The LIF has backfired on insurance companies and both customers and advisers are suffering.
The insurers and the FSC did this and you only have yourselves to blame so I would suggest you start fixing it.

If you retain your customer for more than 5 years the LIF leads to a better outcome for the advice practice revenue wise. Ask your insurers to generate you data on your average policy life. If you are providing quality solutions LIF is not the problem, unless rewriting cover is your business plan. The regulatory hurdles and compliance burden have doubled the time taken to complete new business. This is putting downward pressure on profitability. You will need scale to maintain margin. The days of 1 man operations are over. Its a shame because that is where most of us started.

The most important issue with all this is the profoundly negative effect it is having on consumers. It is much more difficult for consumers to get good quality affordable insurance advice now. What do consumers do instead?

Most do nothing and remain badly uninsured. Some purchase junk insurance advertised on TV or the Internet, which has a high likelihood of claim rejection. Some purchase via their super fund, however without good advice they are often obtaining the wrong insurance type and amount for their needs. Very few are willing to pay the upfront advice fees a professional insurance adviser needs to cover the costs of insurance advice (including the massive regulatory overhead).

The net result is most consumers are much worse off. If only there was a true consumer association that could represent consumers real needs to government and regulators. Unfortunately CHOICE and CALC, the so called "consumer associations" the government listens to now, have been instrumental in pushing dogmatic anti commission ideology, that has actually made things much worse for consumers.

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