The Trowbridge report and the corporate regulator’s review into retail life insurance advice has unduly steered the debate almost exclusively towards churn and commissions rather than the quality of advice, Tria Investment Partners and NMG Consulting argued.
The wealth and asset management consultancy’s partner, Ashwin Field, rebuffed the industry’s argument that churn is to blame for record lapse rates in insurance, and said ‘fixing’ commissions might try to solve a non-existent problem.
“As the life insurance industry counts down toward the deadline for resolving adviser remuneration for life insurance, like many in the industry we are asking ourselves — how did it come to this?” he asked.
“We worry that with the current debate focused on commission and churn, rather than the broader issues of how best to achieve quality advice, and an enforced timeline to come up with a compromise, we’ll end up with an optically appealing resolution that won’t improve customer outcomes, or advice quality, or insurer sustainability,” he said.
In fact, Field worries any solution will bump up cost and complexity, and erode advice quality and client outcomes.
“We don’t think that a line of inquiry that started off being focused on advice quality and customer outcomes should finish with a focus on what is driving lapses (although of course we agree that lapse rates are important),” Field said.
The group noted two main issues the insurance industry needs to deal with: the quality of advice clients receive and client outcomes, and the economic sustainability for players in the industry such as advisers, insurers and reinsurers.
Tria data showed the rolling 12-month lapse rates in the non-bank adviser area had dropped from a high of 14.9 per cent in the third quarter of 2013, down to 14 per cent in the first quarter of 2015.
Field said the decline is not due to the Australian Securities and Investment Commission’s (ASIC) ‘jawboning’ because the decline occurred before the ASIC review.
“But it does match the demographic narrative — a one-off demographic shift driven by a confluence of externalities that drove age increases, and claims, and then lapses, and has now begun to work out of the system,” he said.
He believes the industry should take the lapse rate decrease as an opportunity to examine advice quality, and lift client outcomes.
