Speaking to Risk Adviser, Zurich general manager of retail life and investments Philip Kewin said he understands the “angst” advisers have over a three-year “clawback period” in the recently proposed life insurance advice framework.
“What advisers are concerned about is the customer who has circumstances change and can’t afford their policy anymore, then the adviser is the one that is [affected] as far as the clawback is concerned,” Mr Kewin said.
“So the concern that they really haven’t got an income until the third year – I fully understand that,” he said.
Mr Kewin also acknowledged that with the introduction of a three-year retention period, there will need to be greater clarification over how a policy lapse is defined.
“[This is] because the biggest concern for advisers at the moment is they are completely on the hook for every potential consequence that could arise as far as business going off the books is concerned,” he said.
Insurers can play a greater role in ensuring clients stay on with a policy and reduce the chances of them looking to cancel a policy, he added.
Insurers need to upgrade policies and also address the increasing costs of premiums, Mr Kewin said.
Also speaking to Risk Adviser, ClearView managing director Simon Swanson said the ‘clawback’ period will present a “capital issue” for all advisers.
The introduction of this policy would also require careful risk management planning by advisers, he added.
“[This is] particularly in the case of key person insurance where changes to partnerships in companies’ structures often led to the early lapsing of policies,” he said.
The introduction of a three-year retention period, however, is just one of the points within the newly proposed life insurance framework.
If mandated in its current form, the policy will mean that if a policy lapses within the first year, an adviser will lose 100 per cent of the commission earned on the first year’s premium; lose 60 per cent if it lapses in the second year; or 30 per cent if it lapses in the third year.
But they don’t have to agree with everything the FSC submitted to Trowbridge and – if they didn’t agree – they should have said so – publicly. Actions speak louder than words.
They have to belong to the FSC its compulsory.
Hate to burst your bubble but both of these companies are full members of the FSC. Since this is – and always has been – a FSC driven agenda, they are as responsible as all the other members.
If they didn’t agree with the FSC’s submission to Trowbridge, perhaps they would be kind enough to share their own submissions. As Edmund Burke said “Evil prevails when good men fail to act”. If they did nothing about the recommendations, then they are just as responsible for what their representative body has done.
I hear what you are saying Steve but these guys are actually on the side of the independent adviser and had NIL input into the final outcome.
If you are talking about the banks and the FSC well they have their own agendas and couldn’t care whether you earn a living or not.
I hope I am just being cynical, but this wouldn’t just be a sneaky grab at disillusioned IFA’s business, would it? Mr Swansons insight of a “capital issue” for advisers is more than clear to most advisers I would think. A small business cannot manage risk if it is liable for three years.
It is OK though, those companies with distribution will see their profits skyrocket but only at the expense of consumers and those who USED to support them.
Regina totally agree with you (And hi!! 🙂 )
The big cut in income is hard enough to manage cash-flow-wise but this increase in risk to my business is enough to make me ask the question – is it worth staying in business as a risk specialist?
Ironic that this wonderful new insurance framework increases risk and reduces security for insurance specialists…. The only winners are the insurers.
It appears that once more planners are being blamed for Life office lapse rates, so they solve the problem by increasing claw back time, this is another backward step , which will have far reaching implications. Go back to the drawing board and involve a cross section of planners in the discussion and come up with some modern and realistic solutions, not knee jerk reactions.
Both of them have acknowledged adviser concerns but neither have said how they intend to address those concerns. In fact Mr Swanson says that the policy will “…require careful risk management planning by advisers…”. i.e. it is up to us to work out how to deal with it.
Thanks for the help guys.
Further to my comment below. is it legally possible for an insurance company to have a more flexible clawback arrangement than the 100 1 year / 60% 2 year /30% 3 year the FSC has agreed to???? Maybe Zurich, Clearview and other life companies can show their support to risk advisers by implementing a fairer clawback process?
A two year responsibility period didn’t work in the past, why would a three year responsibility period work now. Trowbridge report didn’t factor in the client’s best interests. It factored in the Life Offices best interests ONLY. The people making these decisions can’t see the forest for the trees…… If you want our industry to survive these changes MUST be changed. For an adviser to have a contingent liability on their books for every policy written is nonsensical.
At last some one is starting to think logically with regards to the stupid outcomes that have been agreed upon. The Advisor in this whole concept has become the bunny , we are being told to accept a 40% reduction in earning capacity, and then carry the can for another 3 years so the Insurance company can protect its earnings , talk about spotlighting to shoot advisor’s, nice outcome for the big end of town.
The other major problem is that Best Interests Duty is now dead in the water.
Should a clients circumstances change and you know they need to readjust their cover you will not do it, and cause your business to suffer a loss, so you will have to turn your back on changing anything for up to 3 years, so much for being able to help your client.
I am glad that Zurich, one of the life companies I have supported for more than a decade and who offer excellent products, claims processes and ongoing service understand the angst that advisers are experiencing. A fairer claw back method would have been proportionally from month 1 to 36. eg 22 month lapse would entail a 14/36 or 39% claw back not 60%.
It’s not enough to talk about the 3 year claw back challenges – they are unworkable. Just work together to have it changed if you want any new business inflows.
For once an Insurance company with balls, without the advisers the industry will go into disarray, clawbacks should be zero, THE LAW says best interest, it is in my best interest to act in the clients best interest, that’s it if you RESTRICT me in offering in the clients best interest Im breaking the law.
Agree, someone is finally seeing the light.
The Insurance Companies should take the responsibility to monitor the “Churners” as they are the main offenders.
Look at the South African method, it penalises the person that churns the business.
Well said, and is it not strange that the only voice of this has been from “unaligned” insurance companies. Thank you for your support.
The banks are, of course, silent on this.