AFA chief executive Philip Kewin told ifa the Choice and Access to Life Insurance (CALI) campaign had come about due to previous feedback from government that the industry had been “divided” on changes to risk advice regulation.
“In conjunction with the FPA we created a joint insurance taskforce so that we could have a united approach to a common goal, [and] so we could remove one of the key elements that was lobbed at us as criticism, which was that the advice profession is divided,” Mr Kewin said.
“We started to engage with insurers and it seems they themselves saw a problem they wanted to try and fix.
“You just have to look at the inflows into the different insurers, very few are in a growth mode, so I think it’s a recognition that we’ve got a far better chance of doing things collectively.”
Mr Kewin said the ultimate goal of the group was to “retain choice” and “protect the current environment” around risk advice commissions “as a minimum”.
“ASIC has the power to reduce upfront commissions to zero, so the main thing we want to do is make sure there is no reason given to consider that,” he said.
“Whether that leads to further discussions around what the suitability of caps are, we’d always be open to that conversation.”
Research commissioned by CALI, which includes representatives from four major life insurers, found that 20 per cent of Australians in the 25-34 and 35-44 age groups were now considered underinsured.
Mr Kewin said the research pointed to the failure of the LIF on several of its stated policy aims, which were around improving the quality of life insurance products and advice for consumers.
“LIF was supposed to produce lower premiums, but on average premiums have gone up, it was supposed to reduce lapse rates and lapse rates haven’t come down, and the quality of the product being delivered to the consumer hasn’t improved because there are so many challenges in the industry at the moment,” he said.
He added that the unified group had so far met with a positive reception in Canberra.
“We’re having good discussions with the minister and with the opposition – they can see as an industry we seem to be a lot more cohesive, so hopefully it will lead to a good outcome,” Mr Kewin said.
And then the FSC now want special rules for Dodgy Direct Life Sales.
The FSC have zero Ethics and Zero concern for Advisers. They deserve to burn.
An absolute mess created by salaried fat cats trying to make more profit for shareholders at the expense of the advisers who generate their business.I now hope the insurance companies suffer the same fate as the advisers they’ve hurt so much
Some really good and insightful comments here.
we will look back and realise the era that this industry was destroyed. Monumental failings from Politicians and Regulators who simply made change to appease industry groups.. all of whom have no idea of the value that advisers provide to clients.
“LIF was supposed to produce lower premiums, but on average premiums have gone up, it was supposed to reduce lapse rates and lapse rates haven’t come down, and the quality of the product being delivered to the consumer hasn’t improved because there are so many challenges in the industry at the moment,” he said.
Premiums have increased because the FSC members have been increasing them at staggering rates for existing customers (they have been trying to encourage churn by reducing premiums for new business though!) This has resulted in higher lapse rates. These have not been offset by new business because advisers can’t afford to write new business on the LIF rates and customers don’t want to pay fees.
This mess has been directly caused by ASIC, the FSC and its member insurers and was helped along by the AFA and FPA. I still don’t hear any of you blaming yourselves though.
The AFA & FPA have finally woken up that the LIF & FASEA reforms were just a big con by the FSC, well its a bit late now, we told you the reforms would end the Life Insurance Industry when they were introduced, both associations sat back and told their members that regardless what they did noting will stop the reforms. Well that was music to the ears of the FSC, and ASIC. The AFA & FPA have been “Lap Dogs” to the FSC and ASIC instead of actually doing what their members wanted them to do and that was to fight for adviser’s rights, WE TOLD YOU THIS WOULDN’T WORK, but no you didn’t listen did you.
Fascinating how a few vocal writers constantly attack the FPA and AFA even when they are doing an excellent job as in this case. What is the purpose of constantly dividing financial adviser? Whose interests do you represent to do this?
“few vocal writers” get real. We’re trying to create a Profession and the FPA is not part of that future.
what exactly have the FPA or AFA done for us?
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Nothing but ruin the industry, absolutely nothing
Hi Dante. Nice for you to comment
Because IFAs were not allowed the opportunity to be consulted during the reform, actually haven’t done the wrong thing (ASIC churning rates were wrong) yet have been impacted through reduction in business, lapses, and decreasing support etc. Is that not too hard to empathise with and recognise the travesty? fair dinkum. One Voice was and is always needed, it is called self interest and complacency.
About time FPA & AFA did something proactive for us risk advisers. Still don’t trust them but it’s a step in the right direction. I’m sure the insurers will stop this from going our way.
Don’t be so sure. The big post-LIF lesson is that the insurers have not found a way to successfully work against us. Perhaps the anti-hawking provisions took care of that?
they will push for robo just watch make it all online you can just smell it
This anti-commission baloney is driven by investment advisers who like writing verbose articles about charging fees for insurance, but never write any insurance. Meanwhile, in the real world, the UK & NZ has dramatically increased risk commissions up to 240% of the first years premium, as they finally worked out that life agents refuse to work for free. Isn’t that an amazing realisation?
When you look at the ridiculous amount of red tape life agents have to complete (in the form of complex SoAs), not to mention months of battling underwriters, simply to get paid, little wonder the insurance companies are finding it hard to write new business. Also, many life agents simply refuse to do the 8 FASEA university units, simply to stay in the industry. It’s insane.
The risk industry has had a well paid dream run for far too long. The argument around having to complete complex SOAs really has whiskers on it. Almost all of the SOA is hard coded and draws input already in your system if you have been doing a full fact find, research and fit for purpose. its time to move on. The commission has been ridiculously high both upfront and on-going for years so its time had to come. Also there will always be underinsurance just as there will always be people who don’t contribute enough to super – its the way of the world. Paying an adviser more or even retaining historically high commissions will not reduce underinsurance. And with the evolution of AI and direct insurance the current levels of cover will not decrease – particularly in the younger segments. Essentially the old arguments no longer stand.
That is the thinking that got us into our current difficulties in the first place.
Actions resulting from this thinking have led to insurance companies making large losses (not helped by a sharp increase in claims) and insurance advisers stopping writing insurance.
Reducing the purchase of life insurance to the partly awful industry fund cover and a high end that is ready to pay up front will leave out a very large number of people in the middle, particularly those with young families. Hence the alarm.
I don’t see the insurers reducing group life commissions to the Group super funds, who do no SoAs whatsover. The life agents out here, who provide all the service support back up during claims etc, know the reality. Under LIF, the new insurance being written has fallen off a cliff – and we know it. LIF was going to be, and has now proven to be, a TOTAL DISASTER.
Also important that a lot of wholistic advisers stopped writing insurance. They are too busy with the red tape around fee for service to deal with the complexity and low initial income from insurance applications. Ironic that insurance companies are one of the main losers from the Royal Commission.
ASIC’s lookback campaign is creating a very large amount of work for advisers, plus the very needed educational requirements, both of which are direct consequences of the Royal Commission. The result is many advisers have to drop risk writing.
What a joke! You were united in your support for LIF, FARSA now you want to use “ASIC has the power “as a scare tactic – to what end. The fact is that most advisers have come to accept their fate –writing risk under current terms will only cause a slow death/bankruptcy.
Deception and innuendo is how LIF came to be, congratulations on continuing the great tradition.
You claim to be “united now”, newsflash –your only united with your ivory tower buddies, risk advisers are all lone rangers.
Writing risk under current terms is fine if you can handle level commissions. 1-year clawback and you get more over 5 and 10 years.
Yes, LIF was a con job – putting an actuary with no industry experience in charge was a masterstroke in the short term. In the long term it was a disaster.
“Whether that leads to further discussions around what the suitability of caps are, we’d always be open to that conversation.”
That’s great Phil. As long as you are open to reducing the level of commission down that’s fine. Don’t worry that the average risk adviser is selling up, retiring and not writing new business. How about we reduce your income repetitively year after year while making your job requirements far more onerous?
The risk versus financial reward in the insurance advice market is completely out of whack. There will only be a few of us left in 3 or 4 years and they will be the current top risk businesses in the country with large amount of ongoing trail revenue. Corporate greed and stupidity is to blame.
Most smaller advisers wont survive the complete mess the FSC, Govt, ASIC, Insurance companies, Consumer groups and the FPA and AFA have left us in. It is a bloody disgrace..
They need to return to 88/22 levels when LIF first came in. 66% upfront is way too low. ASIC, monitor the BID that is the big one, that should stop the churn as you are required to act in your clients best interests. That being said, sometimes changing policies is in the best intrest of the client.
There was NEVER a real problem with “Churning” it was a fabrication by the FSC & ASIC to justify the regulation of the way that financial advisers get paid. The government to about “free enterprise spirit” but our industry is the only industry that the amount of remuneration you receive from selling a product is controlled by the government, last time I looked that was called “Socialism”. SCRAP LIF and FASEA, they have really worked so far haven’t they.
Churning has been a massive issue for the industry. All the insurance BDM’s use the term New “New” business i.e. a new client that has never had insurance advice before. If you ask them what percentage of new policies written fall into that category, it’s incredibly low. Nearly all new policies are re-writes of policies from another insurer. That’s not to say it’s all unethical advice and technical churning but mate if you could see the advice from any bank adviser or AMP adviser in the past, it’s cookie cutter, cancel everything you’ve got and replace it with our in-house product. It’s been a disgrace and the reason we’re in this mess.
its not really that bad if for example you are moving exactly what they have today at say ‘AMP’ for $6500 and you can get the exact same policy at lets say ‘AIA’ for $4200…. Problem is that insurers push our clients to seek better deals, I wouldn’t just cop paying $2k more if I knew my health was fine and I can get what I have heaps cheaper…. Sorry but that’s the insurers issue that they are just not competitve, the old products are way too expensive and if you didnt shop around more fool you. Its not churning its clients best interest, plus I have to do a 60 page document and have them sign 700 times just to get a policy sbmitted.
Seriously, that comment about returning to an 88/22 level really does support the need for industry change doesn’t it.
why do you want to see it go to zero? if you think you can make money lower than 88% you dont write much risk…. 66% and 2 year clawback is an absolute disgrace….. no wonder Fee for service is so ridiculously high in most practises
Yes that was a stupid comment. It should have said “increasing to 200/50 commission level” That’s the only thing that will save the insurance industry now. 88/22 will just not cut it any more.
… , found that 20 per cent of Australians in the 25-34 and 35-44 age groups were now considered underinsured…. that would imply 80% are appropriately (or over) insured. That does not seem to fit with other surveys I have seen.
Great point.
It is a matter of ASIC and many other Government bodies not realising nor understanding what Advisers actually do at the coal face, none of them are interested or care what happens to the general population as far as Risk insurance is concerned. sadly they belive the poultry amount in SGC super is enough for a family with a $400k mortgage plus, very sad state of affairs. A once great industry destroyed by the Banks, Government etc .
I didn’t stop writing insurance because of HOW I was paid. I stopped writing insurance because of the COMPLIANCE requirements required. It’s the combination of the 3,000 word file notes, the multiple meetings and the 10,000 word SoA’s, on top of the other existing compliance obligations. I’m talking about the multiple variables, such as inflation adjusted, CPI index versus not…inside and outside super… indemnity or guaranteed, renewable versus non renewable. Commission premiums v non commission, MLC v Zurich, annual v monthly premiums, any or own occupation, and then finally multiply all that by Life,Trauma, IP and TPD, and then times that all again by recommended by what they can actually afford/want/need. Compliance has reached the stage where if you miss out recording a discussion on whether a client wanted to pay via Direct Debit or Credit Card, you’re going to be killed by compliance.
Yes, very true.
Yep, same reason I stopped and biding my time ’til end 2021. 34 years looking after risk clients and I wanted another 10 years but this idiocy of compliance and FARCE-IA had cut it short. Fancy ME having to do this 8-part iun degree – ludicrous. Tens of thousands of dollars and an ethics exam. never had a complaint and always do comprehensive individualised SoAs. Govt and industry entities should be ashamed for what they’ve done to davisers. I will miss my clients but not the industry – what it has become. I cannot be saved at this stage -= too many good guys gone, especially the risk guys. Life companies are less than a former shell of what they were once. They deserve their self-imposed death as they’ve caused the death of many careers by their inaction.
This just isn’t a case of not having any further reductions in commissions…….this is a case where commissions must and need to be re-set to at least 80/20 if not a 100/20 model in order to sustain the cost of advice, allow consumers to access cost effective risk advice and to stimulate new business volumes to insurers to ensure sustainability of premium cost and claims impact.
It is simply not good enough to be arguing the status quo should remain, as this has been an abject failure to date and will continue a downward trajectory and a spiraling disaster for advisers, insurers and the consumer.
Lets just get this straight from the outset.
A reduction in remuneration is NOT a factor in the quality of advice.
Quality of advice is governed by best interest obligations.
You can receive high quality advice for no remuneration and low quality advice for significant cost in some circumstances. The level of remuneration does not determine the quality or value of risk advice provided.
A constant and progressive reduction in remuneration has resulted in a significant void of advisers no longer placing new business. This is a major problem for insurers and a major problem for the consumer.
The LIF has been a failed exercise and it needs to be admitted and rectified.
If it is not, the writing is clearly on the wall.
You’re right – the amount of remuneration does not reflect the quality fo advice. But there is a point where the amount of remuneration does not reflect value for money. The sophisticated / complex risk situations require a quality well educated adviser and in these cases what is currently a high commission “sale” can easily have the remuneration changed to a fee basis. The smaller and simpler cases, for ease of simplicity lets call it “mums and dads”, will progressively be serviced / advised through various AI solutions. You can ignore it at your peril but that is the future. The insurers though need to reflect the reduced commissions or nil commissions in lower premiums because at the moment they’re going to be the big winners. There are some intricacies around the last comment that are too long for these comment boxes.
This really is great news for our industry but the frustrating thing is it took so long for the AFA and FPA to work together, great its finally happened but this should have been done 3 years ago.
The industry needs to be proactive in such matters so that future changes aren’t implemented by politicians and regulators who have no idea what they’re doing. So far everything from industry has been reactive.
If ASIC reduce commissions to zero , two things will happen.
1. Many advisers will stop writing life insurance (and a large chunk of them Will exit the business)
2. The number of life offices will likely reduce through mergers and sales.
The consequences of this will be even more job losses, massive under insurance and increased reliance on the public purse once the claims start to occur
More like ALL advisers will stop writing risk
Nice work AFA, FPA and others. It is a pity lobbying is required for something so obvious, but at least the lobbying has a chance now.