Life insurance commissions settings, while a hot topic since the Life Insurance Framework (LIF) mandated a reduction down to 60 per cent upfront, have received renewed attention in the lead-up to the federal election this weekend.
The absolute minimum to get things back on track, according to Association of Independently Owned Financial Professionals (AIOFP) executive director Peter Johnston, is moving to at least an 80 per cent upfront commission.
Combined with an increase in the amount of professional judgment that advisers can utilise under expected statement of advice changes, Johnston said it would “immediately transform the market for all stakeholders”.
“The advice profession has endured a ponderous 18-year political and bureaucratic overreach by all sides of politics that badly needs to be resolved in the near future for the benefit of consumers, the sustainability of the profession and the nation’s parlous underinsurance position,” he said in a paper distributed to politicians and industry stakeholders.
“This 18-year saga commenced in 2007 when the Ripoll inquiry later evolved into the 2013 FOFA reforms, which was then perpetuated by the 10-year Frydenberg/O’Dwyer influenced Coalition government reign. Unfortunately for the future financial health of the nation and consumers, the outgoing minister failed to address the ramifications over the past three years.”
With the current Financial Services Minister retiring from politics and a new minister guaranteed, Johnston said whoever takes the reigns will be wondering if they have “been given a poisoned chalice or not”.
“LIF must be the most vicious and industry targeted destructive legislative event in living memory,” he added.
“Ironically and sadly however, it is also one of the most effective and successful pieces of legislation once its backer’s objectives are analysed and assessed. The greatest LIF losers are consumers/taxpayers, the very group all stakeholders should be protecting.
“We believe LIF was not an ill-conceived concept with unfortunate unintended consequences, it was specifically designed and engineered to decimate the financial advice profession and in particular the risk adviser fraternity.”
Without government intervention and bipartisan support, he said, the “ongoing deterioration” of Australia’s underinsurance problem will only get worse.
“The cutting of commission by 50 per cent and imposing unnecessary compliance demands on risk advisers has led to consumer premiums rising by ironically 50 per cent and the subsequent widespread cancellation of existing policies,” Johnston said.
“Consumers are the greatest losers in this unprecedented disaster, closely followed by diminished government stamp duty revenue, life office job losses and the cost of welfare payments to uninsured consumers is escalating.”
Johnston also argued that the choice for how a client pays for risk advice should be left up to them, rather than “Canberra bureaucrats”, putting the AIOFP’s support behind clients receiving a commission and a fee for service-based option proposal.
“Our final request to the new minister is please realise that financial advisers want the best outcome for their clients in all respects or they will lose them and not have a business,” he added.
“Experienced advisers from the coalface of advice need to be seriously consulted by government on what is best outcome for consumers and the profession – the old way of Canberra’s starting position of negativity towards our profession is no longer appropriate.”
The AIOFP is far from a lone voice on the topic, with Phil Anderson, Financial Advice Association Australia (FAAA) general manager, policy, advocacy and standards, last month reiterating that life insurance commission settings form a “key part” of the association’s policy platform.
Covered under objective 1.5 in the platform, the FAAA has marked taking action to “better enable the delivery of life insurance advice to facilitate more Australians being adequately covered” as an ongoing long-term goal.
Anderson explained that “making sure that the LIF caps enable the provision of life insurance advice in an economically viable manner” is core to this objective.
“We need to make sure that it remains feasible to provide advice to younger Australians about their life insurance needs,” he said.
“We’ve also expressed very strong views against what we’ve seen in the in the life insurance market in recent years and upfront premium discount, which we don’t think is in the best interest of clients. We don’t think it’s in the best interest of advisers either.”
Anderson added that the overall survival of the life insurance industry is at stake, with these being among the long list of issues emerging in the space.
“We think that there’s been substantial decline in the number of advisers providing life insurance advice, significant decline in new business,” he said.
“So, we’re not getting the number of new clients into the insurance pools to make it sustainable long term. We’ve had too many years of substantial premium increases, which mean that advisers are spending their time trying to retain clients, rather than focus on new clients.”
Apparently, “life insurance” did not need to be sold and a client could pay a fee for insurance advice, if they sought advice.
Now, who’s going to fix this mess comprising high premiums + high responsibility + high compliance and lower commissions.
Last week the bookies were offering $4.50 on a Dutton Victory
I reckon you could name your odds on LIF being repealed under Labor
Gamble Responsibly!
The nail on the head
“The cutting of commission by 50 per cent and imposing unnecessary compliance demands on risk advisers has led to consumer premiums rising by ironically 50 per cent and the subsequent widespread cancellation of existing policies,” Johnston said.
Also, no one is left to write about what business there is. No one will be held accountable….
exactly what happened in nz and netherlands and they were told what would happen but they had already decided that churning was a big issue and needed to be fixed. Well they fixed it so no one does new business so there is nothing to churn.