Lifespan Financial Planning chief executive Eugene Ardino told ifa that with increased recognition in Canberra that the LIF rules had decimated the life insurance industry, it was doubtful the review would come up in favour of reducing or removing risk commissions.
“The government recognises that LIF has caused problems – we’ve seen insurance premiums go through the roof, and OK there are other factors, but insurance is a volume game, so [new business] volume is a massive factor,” Mr Ardino said.
“We will have seen the underinsurance gap widen, a mass exodus of insurance specialists and more direct insurance products being sold on the market, so I don’t think the government will go down that path.”
The comments come as the latest figures from research house DEXX&R revealed that risk new business sales are at their lowest levels in five years.
Mr Ardino said the quality of advice files used in the review would also be a factor, with the AFA having recently revealed the regulator would use a random sample of files from 2017 and 2020 to provide a comparison on the impact of LIF.
“The quality of advice that’s been provided more recently is better – I don’t believe that LIF caused that, it’s more to do with the fact we’ve improved the standard of advice across the industry,” he said.
“But also the sample being used this time round is a random sample, whereas the sample used for the report done several years ago was based on advisers that had high lapse rates. If they’re going to find more incidence of poor advice I think most would agree that’s where you’ll find them, where there’s high lapse rates.”
Mr Ardino said he hoped “common sense would prevail” and the regulator and government would even consider “lifting the commission rate to a level that is more reasonable”, given that risk advice for middle-income retail investors was generally out of reach at current prices.
“I know some exceptional insurance writers who now hardly do insurance for new clients – they’ll service their existing ones but they’ll focus more on investments,” he said.
“It’s just because underwriting is a lot harder, premiums have gone through the roof and commissions have been cut in half, so unless you’re doing big deals or dealing with clients that are sophisticated enough to pay a fee for service, it’s not commercially viable unless you’re doing other things for that client.”
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The regulators have done nothing but decimate they insurance advice industry.
The sooner they reverse some aspects of LIF the better. There needs to be more upfront revenue to make it worth doing business.
All the other “unintended” consequences of skyrocketing premiums is also leading to client Cancellation rates I have never seen in my time.
None of the above caused by advisers, only by trigger friendly politicians/regulators and greedy insurer boardrooms that thought they could outsmart the industry a few years ago.
The sooner they move to a level comms structure of 25 – 30% for all insurance and drop it back to a 1yr responsibility period the better
25% to 30% would not pay for the cost of a compliant risk SOA in most cases.
Level insurance comms already have a 1 year responsibilty period and look at the result we are seeing with inflows for life offices dropping immensely which is one factor behind the huge premium increases. Level comms is not a solution for life offices to become more sustainable as it is less profitable for a life office to have a book paying level comms than it is for the book to be paying upfront comms of 110/10.
You’re aware that structure already exists, right?
Jimmy probably hasn’t paid for his own compliance or written a decent amount of risk to realise that a level commission would further damage the already fragile risk industry.
Who pays for underinsurance? We all do! The UK government learned this lesson, largely. Where is our government, don’t they realise growing underinsurance will end up costing the taxpayer more and more, centrelink, medical etc.
It will all come full circle. Not much else to say. But from the comments below we have some great conspiracy theorists in our midst…
Based on what has happened to date there is every chance they will get rid of commissions and not increase (which needs to happen) because the people making the rules sadly have proven they don’t listen and have no idea or understanding of what is going on at the coalface!
No chance commissions will go away, simply no chance. It is the ONLY way insurance is sold. If you don’t understand this or want to argue the point you don’t understand, speak to a life adviser and come back here then.
Squeaky_1, you are explaining why commissions should stay, this does not mean they will stay. Most changes in the past 10 years have not benefited the consumer with that not being a factor considered by ASIC.
Spoken by someone that doesn’t have a clue about insurance pricing.
Are you serious or a just a bit simple? LIF has devasted the industry, and year on year since it’s implemention the take up in insurance has been declining…from ADVISED CHANNELS
I don’t understand why this comment is getting downvoted.
[i]“The government recognises that LIF has caused problems – we’ve seen insurance premiums go through the roof, and OK there are other factors, but insurance is a volume game, so [new business] volume is a massive factor,” Mr Ardino said. [/i][i][/i]
This is just wrong.. It doesn’t matter how much new business an insurer sells – if new business is is loss making business from day dot t(e.g,. IP) hen premiums are highly likely to be going to go up. Volume has nothing to do with it.
It’s getting voted down because people think LIF is the cause of the current situation. It’s not.
What is the cause if not LIF ?
how about advisers with no idea?
Insurers being incompetent in the pricing of their products vs the benefits included. Of course the insurers want to blame the advisers for that because of commissions payable (distribution costs) and advisers only recommending products that have policy terms that will give the client the best chance of having a legitimate claim admitted.
Thanks to skyrocketing premiums, nearly all advisers now have high lapse rates!
Eugene Ardino has a lot of courage and insight and he is absolutely right here.
However …
Labor wants to get rid of competition to industry funds and, if you look at all the strange, harmful and crazy laws that have been passed since the Royal Commission, just because something is sensible and desperately needed (keeping or raising life insurance commissions to a sensible level) doesn’t mean that the exact opposite won’t happen.
All it requires is another scandal at the wrong time, for example a large 3-letter licensee finally imploding or anything else like a rabble rouser (“Let us stay true to the golden words of Commissioner Hayne”) and the only insurance you will get will be from industry funds.
The idiots who introduced LIF were told and told and told what it would do! Did they listen? No! Instead they strutted around like bloody peacocks who thought they were geniuses.
Well here we are 4-5 years later and the industry is on its knees – and only getting worse.
No use saying what needs to be done because no-one listens – ESPECIALLY ASIC who is meant to be charged with managing the financial services industry for its betterment yet has only ruined it. Meddling, incompetent fools who’s only role is finding (or manufacturing) fault.
The one thing that gets my goat more than anything is that none of the clowns who made these decisions will ever be held to account. The regulators and the media is happy to hang an adviser by his toes from the highest flag pole for anything we do yet no-one is held to account for the disastrous state the financial services industry is now in.
Pffft, it’s just so bloody typical in this country now.
Well Said. Blind Freddy could have seen this 5 years ago. What disgusts me more is the incompetence of the FPA and AFA to actually win this fight, and I’ll add all the life companies that sat on their hands when LIF was introduced. Now we see those very silent people back in the day queing at Centrelink as job losses run rife in the insurance industry.