Small independent advisers the big losers from LIF
Well matured life/risk businesses will not bother getting involved in the current debate around the Life Insurance Framework (LIF) but would simply adjust the return on their renewals and move on, according to veteran life/risk adviser and mentor, Robert Ross.
Defending the anti-LIF approach taken by the so-called Life Insurance Consumer Group (LICG), Ross warned that the only likely winners would be the major institutions and that the major losers were advisers, particularly those looking to a get a foothold in the sector.
He said the well-matured businesses would not bother getting involved. "Those that already have recurring revenue in the hundreds of thousands will just move on," he said.
"They will start a review process and rewrite all their five per cent and seven per cent renewals so they get 20 per cent. The only ones they will not rewrite will be the substandard lives that can't get new insurance."
Ross said it needed to be understood that life insurance was a business and that income models had been developed over time. "Commission levels are arrived at under market pressures. If too high, premiums are affected and consumers will not buy. If too low, new entrants will fail. That's the dilemma of every person wanting to start a new business," he said.
Ross said the ultimate target of the framework which had evolved from the Trowbridge process had been the small independent life insurance adviser "who usually spends up to 20 hours on one case, gathering facts, comparing benefits, writing advice, and calculating affordability".
"If the insurance the client needs costs $5000, he has to make sure the client can afford it," he said.
"The life guy will be audited (and receive correction if the client who has just agreed to pay the $5,000 premium can't afford it) and the policy will inevitably lapse. Even if no one criticises him, he will have to pay all his commission back under [the] Trowbridge proposals."
Ross compared this to the situation of a real estate agent who received a commission irrespective of whether the client could afford a house.
Money Management is conducting a survey dealing with the impacts of the LIF and other factors impacting the life/risk sector: http://fluidsurveys.com/surveys/cirruswealth/money-management-2016-life…
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