In a forthcoming episode of the ifa Show podcast, Synchron director Don Trapnell said while insurers had been accommodating in providing temporary relief measures for policyholders early in the pandemic, lapses were likely to rise as the longer-term economic impacts of the crisis continued to be felt.
“As this thing digs deeper, and it’s still got a ways to run, we are going to see life insurance policies fall off the books,” Mr Trapnell said.
“The tragedy is the LIF was never designed to cater for a situation where consumers were forced to stop their premiums, so we are going to find the two-year responsibility period particularly galling for advisers.”
Mr Trapnell said one insurer had already offered to temporarily defer premium clawbacks for clients that cancelled their insurance during the crisis, but he suggested that such a measure would be “delaying the inevitable”.
“We believe if a lapse occurs, unfortunately the writeback is going to have to occur unless they change the law,” Mr Trapnell said.
“Insurance advisers have certainly rung my office and said ‘why can’t you get the company not to write the premium back’, but the short answer is it’s the law – it’s not something they have an option on.
“The concentrated effort has to be on preventing the lapse as opposed to trying to manage the writeback, and the way you manage that is through premium holidays or cover suspensions.”
Figures released by Roy Morgan last week revealed that almost a quarter of the Australian workforce was currently unemployed or underemployed, as fears grew that the nation’s economic recovery would be hampered by a surge in COVID cases in Victoria.
However, Mr Trapnell said a surprising increase in new business among the group’s advisers was for the moment offsetting lapses that were occurring for affordability reasons.
“Coronavirus has forced advisers to adopt new technologies, so we’ve got a whole quantum of advisers who have discovered something new and we’re finding they are talking to far more clients now than they were before,” he said.
“As a result of that, more insurance reviews are being undertaken and more sales are being made. As time goes on and we get used to using this sort of media, I think we’ll find advisers are going to ease back on the amount of interaction they have, but right now we are seeing an uptick in new business as a direct result of coronavirus.”
Clawback relief on the cards? ? Why, because Don Trapnell says so?
Show me one insurance company that has put that in writing Don. Don hopes that tbey might but we all know that they won’t.
The insurance / financial planning industry is going down faster than the Titanic. 432 advisers exited the FAR register last week. 3 started? People are moving the deck chairs on the Titanic but it is still sinking very quickly. Soon there will only be a few of us left. Sad really.
Still no comment from Sally Loane and the FSC on the disaster that’s been caused by the LIF regardless of Covid which does worsen the problem but can’t be blamed. Come on Sally answer the questions.
https://www.ifa.com.au/risk/28157-underinsurance-soars-as-premium-hikes-lif-bite
oh the hideous irony “the LIF was never designed to cater for a situation where consumers were forced to stop their premiums”. Life insurance advisers suffering from unforseen circumstances – the very thing we seek to protect our clients against.
The original purpose of a clawback was to reduce policy churn.
If an adviser was purposely replacing business within the first 2 years, there would be a penalty applied.
This issue now is that the majority of reasons why policies are being cancelled or reduced within the first 2 years has nothing to do with advisers replacing existing insurance policies but everything to do with skyrocketing premiums and a pandemic resulting in unprecedented impacts on people’s lives, employment and incomes.
None of these factors are of the adviser’s doing and none are a deliberate action to gain a financial advantage.
And yet…here we are being significantly disadvantaged and compromised simply because 6 months, 12 months, 18 months ago we provided advice to clients in relation to their risk insurance needs and provided a financial protection strategy to protect, individuals, families or businesses.
This is on top of all the insurance policies that are now being cancelled or reduced because of the financial impacts that may have been in place for many, many years……..no clawback of the initial commission, but a loss of ongoing commission again through no fault or recommendation from the adviser.
The adviser has been compromised on every single front…it is a perfect storm of destruction.
Meanwhile the UK has put up Life Agent Risk Commissions up to 240%. At that rate, you could handle a few claw backs. And the UK agents new business is growing whereas under the LIF lunacy in Australia, new business has fallen off a cliff.
No worries, the 14,000 retail advisers & life agents will keep reminding our MPs this until the Haynes RC/LIF lunacy against agents & advisers ends. We are going direct now, no need for the FPA any longer.
Commissioner Hayne…..where art thou now? You captained the ship that was going to rescue those tossed overboard and wronged by the “rogues”. But your ship seems to have sailed off into the sunset and the waters now choppier with more clients unfairly cast adrift to fend for themselves due to increasing cost burdens imposed those advisers left! Nothing more than a man that simply used a style of elaborate language to espouse he had knowledge, when clearly he lacked it in many areas. Time will judge if the post RC world is truly better for clients, but to date I have seen very little evidence of that as a whole.
Very good point. As an industry insider said “Royal Commissions typically have multiple commissioners to avoid ego problems when it comes to make recommendations”.
The wise owl regulators should have themselves to blame for this disaster. They should have anticipated this situation and lack of foresight is a scathing indictment on their gross negligence. Hindsight policy and judgement is so easy.
They hold us to account based on hindsight and they must be subject to the same standard.
David the problem is that any offer by insurers that stops premium for the client will be treated as a lapse under the LIF rules. And the client will not be on cover, and may face underwriting upon restoration. Right now, the re-insurers are in panic mode and riding roughshod on insurers taking non-standard lives above 150% for life . Who knows what the reinstatement rules will be – that is not in policy documents. That is crap!
As to profitability of insurers there are a lot of contributors to that debate, but the impact of reduced comms and clawbacks I believe has causedmany advisers concern.Genuine new lives with new business is down 40%, and that will kill every Number 1 Fund eventually-its just a matter of time
This is bitter irony. Be careful what you ask for, monied lobbyists, pretending to care for client best interests.
unintended consequences of short term thinbking
Another time bomb that COVID has shown will be the 12 month pre disability arrange that will come into play from next year for new policies. The was/is is real risk where client is laid off due to COVID for a few months and then becomes sick. Guess what the benefit under income protection policy they have been paying for is now a whole lot lower. I am not sure why they can’t make the past 24 months or 12 out of 18 months to at least provide some buffer.
Clawbacks suck but on the other side of the coin if the law changes and clawback requirements are reduced how much will that affect the profitability of insurers. The way I see it there’s no great solution, premium holidays and cover suspensions is the best of a bad situation.
The two year clawback is a huge psychological barrier for advisers. The clawback strongly discourages advisers from selling policies that won’t be renewed but if an adviser isn’t ready to do level commissions (one year clawback) each new policy is quite scary to do and is a strong disincentive to write insurance. One of the reasons new business has been falling off a cliff and many formerly wholistic advisers abandoning writing insurance.
I remember in the old days the “Lumley Life” (I think it was) policy had a monthly only commission and therefore no write back on commissions paid.
I once had a OnePath policy cancelled after 10 months. I was only asked to repay 2/12 of the commission I received. That policy had hybrid commission. I was very surprised and delighted at that outcome.
Yes – a long time ago Anon. I worked for Lumley from 1998 – 2001. Proud to have done so, ahead of its time in treatment of and partnership with advisers. The idea we had was to help agents (as you were then) to build a real business, plus concentrate on renewals. Lumley paid commission as we earned premiums – at 75% ‘upfront’. Renewal was from around 28% to 35% and level commission around that too (memory fails a bit here!)But the idea was to pay more on renewal as in-force premiums increased. That lead to a higher multiple on any sale of a book, and a much better base to build a business together – for the company, lapses were single figures, and the ROI was very sound. I can’t comment with any authority on how LIF would overlay on this structure, with agency and a different world, but as I say, I considered the Lumley approach ahead of its time, and I have continued to work for life companies who support advisers and the advice process.
Ask an Actuary at a life office what level premiums will do to affordability medium to long term?
As a level premium writer I can tell you they don’t want level premiums. Which begs the question why offer level premiums?
The economy is in a down turn, we are In a low interest rate environment where can they possibly invest the premiums? Couple this with the amount of claims coming through their doors, This is why you see level premiums being re-priced almost on a yearly basis. I see no value in writing level premiums anymore when after the rate lock they will just jack it up by anywhere from 10-60% from my experience. Then comes the difficult conversation with the client explaining why level premiums went up when Indexation was turned off.