Tough times for growing new risk business

New advice structures and market channels will eventually emerge but not before an even further shrinkage of the life insurance market and the fact that there will be fewer risk specialists given decreasing adviser numbers.

DEXX&R managing director, Mark Kachor, said with adviser numbers decreasing due to educational requirements and the increasing cost of doing business, there would be even fewer risk specialist advisers in the market who understand life insurance, and who are able to sell and recommend risk products to clients.

“With the shrinking number of people who are selling business it will be very hard to grow new business. Now, some companies will win market share, but it'll be out of a smaller risk market,” he said.

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“I suspect down the road we will see new advice structures and the advice market channel will start growing again. But right now, it's still shrinking.”

Kachor said the vast majority of bank-owned dealer groups “never made money” and now that dealer groups were privately-owned they needed to be profitable to warrant investing in advisers.

“So, advisers now have to pay a greater share of their income to get authorised under them. At the same time, you've got all the FASEA [Financial Adviser Standards and Ethics Authority] requirements kicking in, the ASIC [Australian Securities and Investments Commission] fee is going up, there's a lot of rising costs, and you've got continued complexity in providing advice,” he said.

“You've got these design and distribution obligations and soon advisers will not only recommend what they believe is in the client’s best interest but they also have to state why the product, whether it is from MLC or TAL, was designed to serve the client.

“It just gets more complex and more time consuming. I think we'll work our way through this. It's this process has been a seismic shift, and all of this is having to happen under COVID where it's very hard for an adviser to give face-to-face advice.

“The life insurance market will have a few quiet years as it's going to be challenging due to the shrinking market while all these changes work their way through. From thereafter I think things will start picking up again.”

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It's not just about risk specialists leaving. Holistic advisers are dropping risk insurance advice or drastically scaling back advice in this area. It is too risky, compliance heavy and remuneration is constantly threatened. Right now life insurance advice is in a death spiral. Way too early to say there will be growth in a few years.

Agreed George. On top of the issues you mentioned, the quality of advised products is declining, particularly Income Protection. Agreed value has already gone, indemnity definitions are being tightened, and replacement ratios and benefit periods are being wound back.

Insurance advisers are having to charge higher fees, but can only recommend lesser products. What's the point in even bothering with insurance advice any more?

That combined with spiral medical underwriting hurdles pushed by the two remaining re-insurers means that the skill set could die and only be practiced by a very small niche players. Until robo comes along and does a WAY better job (at least according to the FSC) and advisers won't be needed.

I think the insurance companies have already realised they should have been careful what they wished for starting with LIF. ASIC is now bludgeoning the life out of the remaining advisers. Australia will be poorer in the long run for the cost, complexity, business risk, cut remuneration and just plain depression inducing policies foisted upon advisers.

The future of life & disability insurance in Australia is:
- massive decline in good quality advised insurance
- small increase in poor quality direct and super insurance
- widespread underinsurance
- big increase in welfare dependency

It's bizarre that a government which supposedly believes in encouraging private enterprise and minimising welfare reliance is implementing policies which do the exact opposite.

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