Speaking on a panel at the FSC Life Insurance Summit this week, FPA chief executive Philip Kewin and FPA chief executive Dante De Gori focused on choice around life insurance commissions, for both consumers in choosing how they pay and for advisers in deciding how to structure their businesses.
Mr De Gori said the framework is hard to consider in isolation, noting the “jury is still definitely out” on its success.
“We have the data, we know that businesses are reducing inflows and premiums. Advisers are telling us businesses have changed as a result of this,” he said.
“Without question, you halve the remuneration model of a business overnight, that’s going to make changes. It is interesting, some of the data we’re seeing about how advisers have actually adapted – some have taken that reduction and not looked at other avenues or other options… I don’t know how sustainable it is.
“But without a doubt, the fact that there is still a commission framework, gives choice to both the consumer and advisers. I think the jury’s out as to whether the framework is successful.
“Ultimately, at the end of the day, we’ll see that in the review.”
On the weekend, both industry bodies along with a number of major life insurers declared they had teamed up for a new campaign calling for a reset of policy settings around insurance advice.
Mr Kewin signalled on Tuesday that the joint effort will work to prevent any further changes to commission levels.
Mr De Gori commented that the AFA and FPA are considering the metrics for success of the LIF in their joint taskforce.
“There’s a question that’s been asked in this forum about whether commissions should stay, and I think for me we have to look at it the opposite way,” Mr De Gori said on the FSC panel on Tuesday.
“It’s about choice for consumers and it’s about choice for advisers, it’s about how they want to structure their business. And if there were to be drastic changes to the life insurance framework going forward, then what you’re really doing is removing choice.”
Mr Kewin echoed Mr De Gori on choice, noting Australia is “one of the few markets in the world where remuneration is regulated”.
He also referred to the framework’s original three objectives: lower lapse rates, reduced premiums and improved customer outcomes.
“They were the three objectives, but to Dante’s point you can’t look at it in isolation and we know we haven’t achieved that,” Mr Kewin said.
“But is that primarily due to the life insurance framework or is it due to the much broader issues impacting the market?”
Mr Kewin noted the royal commission response to see how the process for rolling out the LIF would play out, before reviewing it in 2021, was “common sense”.
“But clients want to have the choice as to how they pay for their advice, whether it’s commissions, fees or a combination or both, but they should be given the choice,” he said.
“And given the right disclosures, which do exist in this country and our framework, people know what they’re getting in for and how much it’s going to cost them and how they’re going to pay it.
“If you’re a holistic adviser and you’re looking at all of the different mechanisms, you’re looking at investment portfolios and things like that, yes you can bundle up a fee, but if you’re a risk specialist … I know advisers have done it on an hourly rate. If you want to pay a fee because you don’t believe in commissions, fine … they’ll list it out and charge the hourly rate and give it to the client and the client says, ‘I’ll take the commissions fees’.”
ASIC is due to review the framework in 2021.
Research commissioned by CALI (Choice and Access to Life Insurance), which included representatives from four major life insurers, found that 20 per cent of 25-34 and 35-44 age groups were now considered underinsured.
Mr Kewin has previously told ifa that the findings have shown LIF had failed on its stated policy aims, including improving consumer outcomes.
I have just learnt that John Trowbridge has participated as a panelist at an FSC insurance summit.
This is clear evidence the FSC either has no understanding of the damage this individual caused or supports his approach and recommendations.
During the LIF negotiations, it was very widely thought and suspected that Trowbridge was liaising with the FSC without including other members of the working group (LIAWG) assigned to oversee the process.
At the time, calls were made to abandon the process as it was suspected the LIAWG Terms of Reference had been breached.
The FSC provided media releases signed off by current Liberal politician Andrew Bragg who blatantly provided wholesale support to the Trowbridge report and even promoted the abolition of insurance commissions entirely as the ultimate outcome.
This is simply appalling.
It appears the FSC are still up to their ears in Trowbridge.
The FSC cannot be trusted at any level to provide a reasonable outcome to the utter mess the Life Insurance industry now finds itself in due to legislative change based on falsehoods,ideology and corporate greed.
I don’t think Mr De Gori is the right person to be representing advisers in this matter.
Here’s a novel idea: Let consumers choose what, where, when, how and from whom they’d like to receive advice, in what format, paying what price, paying from where and how to pay. Governments shouldn’t interfere or dictate terms to those they’re apparently trying to protect, when those working for government have no idea what they’re doing. If a client is aware of how much an Adviser is to receive for a product, where it’s coming from and what the alternative payment options are and they accept one or the other that’s called CHOICE. As a consumer if I don’t like it I’ll go elsewhere or not get it.
There is way too much goverment intervention in Australian businesses. Get out of the way and let adults make decisions for themselves in the free market.
Yes, exactly what the Union based super funds want. All the minimal regulation is running their way, and and the excess regulation is designed to cripple their competitors. So much for the level playing field. We are being conned.
Lets take the worst case scenario in 2021……ASIC complete their review and recommend that all Life Insurance commissions are banned for new business.
What about if ASIC then also recommended that all ongoing servicing commissions should be banned for existing risk business ?
The banning of grandfathered commissions was directly related to retrospective business that was subject to existing contractual rights of an adviser to receive based on the Australian Government Solicitor’s advice to Bill Shorten.
If the current Govt completely ignored this precedent and proceeded to effectively wipe out contractual income from advisers what will stop them destroying advisers businesses by altering legislation to effectively ban ongoing servicing commission ?
If the Govt were to effect this process it would completely destroy the advised Life Insurance industry as we know it.
Based on the Govt’s previous attitude toward adviser’s livelihoods it would not be safe to assume this would not happen.
Which is exactly why many advisers are getting out and those remaining don’t intend offering life insurance advice any more, except in limited cases at high cost. Advisers have completely lost confidence in the revenue. They don’t trust the regulator, the industry associations, politicians or FASEA. To turn this ship around, it will take something monumental. Keeping LIF won’t cut it. The horse has bolted. Permanent damage has been done. The last person working in the life insurance industry – please turn out the lights. The self-serving lies about churn have now come back to bite them. Karma’s a bitch!
If they do that, then why wouldn’t they extend the same reasoning to Mortgage Brokers, General Insurance Brokers too. Isn’t it ironic that the more the gov’t interfere with industry the worse the industry gets.
And then the government needs to pick up the tab for those who were uninsured or underinsured by way of social security…which means taxpayers foot the bill. Perhaps if someone (eg a professional association or insurer) communicated this to Joe Public, then issues like this wouldn’t be an issue. Similarly with almost every rule and regulation that the likes of ASIC place onto Advisers and indirectly clients that clients don’t want or don’t realise. Let them know and direct them to their federal member when they’re not happy about paying for a SoA they don’t want.
LIF was to give a better outcome for clients & supposedly for advisers. Tell me then why have premiums increased across the board by as much as approx. 20% for some products, products has been set back giving clients no option but channelling down only one pathway for income protection with an inferior product & why have life insurers New Business suffered dramatically. LIF a great success!! If they concentrated on more than commission paid to advisers they may have come up with a fairer outcome….well done guys!!
The ignorance of these executives is breathtaking. If they looked at the exam numbers, they would know 60%+ of advisers are planning to exit by the end of next year and if they actually spoke to advisers, they would know that most of us who intend to remain are cutting or scaling back life insurance advice as a deliberate strategy or as a consequence of shedding small clients and targeting older, wealthier clients with less need for cover. By the time 2022 comes around, life insurance advice will be cooked in this country, as the small number of life insurance companies remaining will not be getting enough inflows to justify products or services tailored to advised clients. It will be direct only, with a handful of lucky consumers getting some guidance from an adviser. Arguing about whether or not LIF continues, is akin to rearranging deck chairs on the titanic as the bow lurches into the air.
Lower lapse rates –Fail
Reduced premiums – Fail
Improved customer outcomes –Fail
More sustainable industry- Fail
Not one positive from the reforms- unless you count the short term bonuses for execs and additional value ratios for the now sold insurers and some ASIC pencil pushers full of glee for having stuck it to those evil advisers.
If the “Jury” is out – must have passed out- possibly in a coma!
Ideological aims achieved – Pass
Only the lunatics at FPA, AFA and ODwyer / Govt could possibly think the jury is still out.
LIF = Ludicrous Intervention Failure !!!!
You are correct. However what you forgot to add was:
Increase in welfare costs for uninsured/underinsured consumers – Pass
Loss of dignity and opportunities for people who have to use welfare at what would have been claim time – Pass
Increase in costs for mental health issues for these people and/or their families – Pass
Increased cost to Government and NDIS as a direct result of LIF which equals higher taxes long term – Pass
Once again, the legislators have not used “Common Sense” to foresee a change in life insurance remuneration affecting the rate of under-insurance in the country. The under-insurance situation will only get worse with the droves of Financial Advisers leaving the Industry. I do not focus on life insurance as much and spend more time with investments and retirement planning after LIF as the ‘effort-pay-off’ is less enticing, “Common Sense” really!