Will vertical integration make a comeback?

There’s a dilemma for life companies to address who trains and educates advisers in risk given many risk specialists have left the industry and it could see insurers going back to setting up their own dealer group.

DEXX&R managing director, Mark Kachor, said the life insurance industry was going to face a rebuild in expanding its distribution under the dealer model.

Kachor pointed out that TAL had a small dealership and that AIA for the first time had a dealer group after acquiring CommInsure.

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“There are small steps taken back into vertical integration particularly just to support risk,” he said.

“You've got a relatively open approved product list (APL) as a dealer group owned by TAL does not only sell TAL products, they have typically, two-thirds of the market available to sell. For example, what TAL might see in all things being equal is that they will sell a TAL product if it is roughly similar to the MLC product.

“If it's roughly similar, then the client doesn’t lose anything and you're still acting in the client’s best interests. Keeping in mind best interests has been injected into the equation. The vertical integrated problem previously was that it took them a long time to get around the really putting best into the practice.”

Kachor noted that given commissions were not fixed and it was the same irrespective of which life insurance product and adviser recommended, the corrupting aspects of vertical integration had been eliminated and removed.

“Commission can be thought to influence and encourage mis selling, but by neutralising and making it identical between products you largely eliminated all of the negatives attached to it,” he said.

“Life companies are now the crossroads – they either have to get more actively involved in supporting non-aligned advisers who want to continue to continue selling risk and want to learn how to sell risk, and/or get their own specialised dealer groups so they can support them with an open APL where there is no obligation to sell or recommend their own product.

MLC’s general manager for retail distribution, Michael Downey, did not agree and said there was an inherent risk of conflict around vertical integration and the fact that it was quite costly to run an advice licence.

“The only reason an insurer might stand up their own licence is if you’ve got a large client base and over the years with more advisers exiting, they might not have advisers attached to them,” he said.

“So, if you want to try and offer personal advice to that client segment, you probably going to have to have an advice licence. So, there may be some opportunities there.

“But that's an interesting one, I'm not sure we'll see the major life companies looked at stand up their own dealer group.”

Downey said it would be a bold move by various boards and senior executives of life companies to potentially want to stand up a licensee.

“I could be proven wrong, but I'm not sure we’ve got an appetite to do that at the moment,” he said.

TAL chief executive, Brett Clark, said the core issue was around the regulatory framework supporting the delivery of financial advice.

“Whether it’s owned by life insurers or not I don't think that's the core issue. The core issue is around the regulatory framework supporting the delivery of financial advice. That's what we need to solve,” he said.




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I actually think it's more likely insurers will invest heavily in direct distribution channels. TAL is already well down this path and others are likely to follow. Noble Oak is well established as primarily a direct insurer.

Regulators have made it fairly clear they will make it as hard as possible to give professional insurance advice, but they will allow pretty much anything when it comes to advertising, call centres, and online. The recent regulatory dumbing down of income protection products will be a further driver of the shift from advised to direct distribution. It seems regulators want to transform life and disability insurance to a similar sales model as car and home insurance.

Insurers will go with the flow and transition to the regulators' preferred direct model in order to stay in business. Professional life & disability insurance advice will soon be extinct.

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