Speaking at the FSC’s Life Insurance Conference in Sydney yesterday, the former APRA member and author of the Trowbridge Report said it is “worthwhile” that the life insurance sector is being reformed.
This is because of the “underlying structural problem” created by the role advisers play as intermediaries between an insurer and a client, and the way in which they are remunerated.
“Historically, intermediaries have been essential in stimulating product demand not withstanding a clear need across the community for the products that the life insurance industry actually produces,” Mr Trowbridge said.
“Product-aligned services and remuneration of advisers are built around what advisers want and what they say the customers want. And, what they say the customers want is not necessarily the same thing as what the customers do actually want.
“Insurers, historically, have survived and prospered only with the support of advisers, hence the effective customers of the insurer are the advisers not the consumers themselves as the policyholders,” he said.
“Commissions have become the normal form of adviser remuneration, and they have done so for a long time, and especially where the initial commission on a new policy and replacement policy exists materially higher than renewal commission, which creates a conflict of interest.”
Mr Trowbridge said these conditions have created a “first move disadvantage” for insurers, where no company could “break ranks” from paying out commissions without “jeopardising” its business.
“Insurers have – [but] not deliberately – become captive to advisers, and that is not a criticism, by the way, of the advisers; that is just the way the industry has been structured,” he said.
This problem may not be obvious because many people have “come to expect” that life insurance operates this way, Mr Trowbridge added.
The conflict of interest problem is “real” and no matter how much education, training and professionalism advisers have, commissions “just cannot work” in the best interests of customers. Reform is therefore necessary, he said.
I just read Mr Trowbridge’s comments and I fell on the floor laughing!
What do Clients (not consumers) want? Simple:
– policies that provide protection for real world problems
– policies that do not have tricky wording
– policies that are fair value for money
– insurers to pay their claims
All other issues are secondary.
So, amongst those issues, how is it that advisers are the problem???
Here is a “real” conflict of interest for Mr Trowbridge to consider:
http://www.brisbanetimes.com.a…
Amazing the dribble that counts for educated opinion…
If you look closely at the criticisms of Trowbridge they are biased in the sense that the outcome of his recommendation will lead to advisers being faded out from the industry and Banks will employ tied advisers . There is no reflection on the value of advice that clients have had during the time of need. The commonwealth bank defaults in the claims process has been mostly due to situations that were not provided by advisers but by direct Insurance . Trowbridge is not acting in the best interest of the community but acting in some hidden agenda for the big banks and
One can only wish Greg that you do not have a family who relies upon you to protect them should the unforeseen occur. If you find anyone in life prepared to work for a pittance then that’s a reflection of the quality of the person and of the advice. Good luck.
[quote name=”Greg”]Insurers are captive to advisers is precisely the reason why I have not purchased life insurance. The commission paid to the agent / adviser exceeds by a long way any value the agent might add. I have searched for agent free online life insurance without success. I hope this review breaks the agent / insurer deadlock[/quote]
Greggy – ill informed much? Better to remain quiet and be thought a fool then to open your mouth and erase all doubt! Your absurd statement does nought but display your utter ignorance of any aspect relevant enough for you to even voice an opinion.
So Mr Trowbridge, from his lofty eyrie, thinks he knows what consumers want.
And apparently its not what we tell the insurers the customers want
The consumer groups who got into bed with the banks to convince Frydenberg they knew what consumers wanted out of LIF, adopt the same tactic as Mr T – pretend you know even though you wouldn’t know a consumer if you fell over one
No amount of dodgy surveys will elicit what consumers really want-you have to be on the front line. Tricky survey questions designed to get a certain outcome DO NOT CUT IT Its referred to as push polling
As was outlined in the comments below, what about the ‘structural’ issue of clients not seeking advice when they will have to pay a fee upfront to have an adviser work with them to ascertain where their current insurance gaps are, how much cover they want to fill in those gaps, work with them to find a way to structure and budget for the premiums, assist with the applications, follow up with the insurers/paramedical services/doctors/etc? And all before they even know if they will be accepted for cover or not.
Insurers have said that the premiums wont be reducing, even after they slash the comms paid. So if the cost of premiums PLUS advice fees for ordinary Australians after this ‘great’ change are higher than premiums with built-in comms, than how have most Australians benefitted from all this? Different if you’re someone who is paying a significant level of premium, fee for advice would work then, but not for the vast majority of individuals/families.
In this world of full disclosure
Just how much money is John Trowbridge earning from the FSC to act as their defacto spokesman
Money speaks all languages !
[quote name=”Dave”][quote name=”Greg”]Insurers are captive to advisers is precisely the reason why I have not purchased life insurance. The commission paid to the agent / adviser exceeds by a long way any value the agent might add. I have searched for agent free online life insurance without success. I hope this review breaks the agent / insurer deadlock[/quote]
GREG, I’LL DO IT COMMISSION FREE FOR YOU MATE… But there’ll be a once off advice fee of at least $3,300 to cover the cost my business incurs in preparing and providing and implementing the advice.
Sadly, the ‘value’ added to you is not necessarily correlated with the costs my business incurs in managing all the red tape and legislative requirements.
Now do you get it???[/quote]
Spot on.
The only suitable holiday Mark after this governments “significant error of judgement” is a permanent holiday. Between my wife and I , 75 years of Industry experience has gone out the window. Nothing will change the outcome now, there have been to many vested interests dominating the conversation with those most informed (risk advisers) trying to look after the best interests of their clients.
Our Industry changed forever on 26 June 2015 when John Trowbridges flawed report was released and when the bodies supposedly representative of our Industry failed dismally in their efforts to influence the final outcome. I must say that in the final wash up the references to Industry consultation really annoy me as the important voices have been ignored.
B – No Im not an accountant.
David – No I haven’t been an adviser because that requires a special set of direct selling skills where I must bow to greater people than me. I have however spent over 10 years in product design and management. The struggle I have always had with pricing beyond the core areas which you mentioned is loading the pricing to allow for commissions etc. which means essentially building something to meet all needs – almost an impossible task. My view is that the adviser should be as much in control over the TOTAL client pricing as possible. After all, the manufacturer really can’t earn any money until someone sells their product so they are lame without advisers.
A viable alterative should be that manufacturers price for all the things you have mentioned except for commission i.e. only build a wholesale product and leave the adviser to price according to their advice and client value add. That puts a lot more control in the advisers hands which is as it should be.
I seem to have struck a nerve but what I’m saying is that manufacturers, and many licenses, have built a business environment for advisers that perhaps hasn’t been the best for advisers and unfortunately its the adviser that is the poor whipping boy almost every time. And that’s just not fair.
@ Mark…Yep I agree. At least a three month risk holiday from July 1. They don’t seem to get any other message we send. They might get that one..
[quote name=”Don Brown”]Guys we are all F###@!@#D the FSC AFA FPA have won the greatest legislative victory in the history of democracy the day the LIF legislation is passed.
I am looking forward to the reaction from the Insurers when there sales hit rock bottom in the next 12 months and suddenly they will understand they got what they wished for as they will not be paying commissions because no one will be writing new business.[/quote]
Don, could not agree more, as I have been saying since the start, we ALL need to take a three month holiday come July, by the time we get back the Banks would have reduced the insurance companies staff by at least 50%.
Without us writing new business there will be no need for BDM’s or BDO’s, Underwriters, or new business processors. State Managers will have to report to their National Managers WHY they have not made their “Budgets” and then the National Managers will need to report to the CEO’s of the Insurance Companies that LIF has destroyed their businesses. Mean while the unemployment level will spike with all the redundant employees of insurance companies being added to it, THEN the idiot politicians will actually see what they have created and will need to FIX IT!
Would you like to join me on overdue holiday?
RT Is clearly an accountant. His pseudo economic statements that illustrate his limited understanding of market mechanisms and ‘dealing with advisers’ statements reveals as much. I bet he loved the MIS Agriculture stuff and recommended them to everyone because of the tax advantages 😛
Accountants that think they understand economics and finance are the bane of my existence.
RT – I didn’t comment on the product pricing structure, but having been a CEO for 11 years in NZ and Australia, I have a fair idea of how net risk product pricing is structured and it includes a loading for expected lapses, reinsurance, commission, general operating expenses, and profit. That’s not rocket science.
But back to the matter under discussion – Trowbridge’s assertion centres on excess lapse rates being caused by commission distorting the sales process to the detriment of the consumer, and he may be right – but in order to justify the recommendations, he should develop a robust and testable methodology to substantiate his claim. He’s a qualified actuary in a profession which relies prodigiously on scientific processes and defined logic.
In this instance, his assertion is based on speculation, assumption, and anecdote – insufficient evidence to prove his assertion.
If he, or anyone else, does this (the NZ regulator is in the midst of researching the issue), we’ll all be on more certain ground to debate the merits or demerits of commission.
It would also be helpful if you had a practical viable suggestion for an alternative compensation structure which is acceptable to consumers,
One can only assume “RT” (if in fact those are your real initials), that by having “25 years in the business and working with 100’s of advisers and multiple providers and licensees” you have made a healthy living from this industry?
Would you please confirm if you have ever been either a risk adviser, financial planner or both at any stage?
When you say “working with”, what exactly has your role been ?
Secondly, by hiding behind your initials and obviously having so much to say in support of Trowbridge, we can again only assume you have a need to protect your identity, but sadly do not have the courage of your conviction to be open and transparent with the very people who you have worked with, for or beside for 25 years.
Anthony if you reread Trowbridge’s use of the word “customer” he wasn’t being derogatory and taken in context its probably the best term of the insurer / adviser relationship.
You are 100% correct that it was not the adviser that demanded the excessive commission rates that exist. The insurers did it to woo advisers to use their product over another company’s. Then companies also added more unnecessary “features and complexities” to their products, adding to costs, to make them appear better value to clients and thus offer another selling advantage for an adviser. Just look at the farce around events covered under trauma insurances.
The insurers are at the core of the problems. The insurers set the commission and product design traps and many many advisers fell into them and hence, in many cases unwittingly, advisers are now complicit in the problem. What mega brain came up with having products with different tiers of commission e.g. up-front, hybrid, level and left the decision to the adviser? It was invented by a manufacturer inventing a financial product over an insurance product.
In all the years I have been dealing with advisers in was the rare case where an adviser said they selected the commission option based on the best option for the client – it was always about which option was best for their business at the time e.g. when cash was tight up-front was used more, when a business became more financially stable level became more attractive. I’ve even seen retiring advisers run “churning campaigns” in the final 18 months of their business to increase sellable on-going revenue. Because the options were made available by the manufacturers the advisers arguably did nothing questionable – they just fell into the manufacturers’ trap.
I really think this is the message that Trowbridge has – the current model is broken and needs a huge make-over to bring it into the 21st century and increase the professionalism of the industry.
What Towbridge fails to acknowledge is that for the life insurance industry to continue to provide ongoing service to the community a fee for service approach will provide an underlying structural problem if clients are not prepared to pay fees and advisers cannot earn an adequate income to run their business. This is as much a structural problem as his concern for commissions.
Mr Trowbridge has got his facts 100% wrong. Advisers have never been customers of the insurer. Commissions have always been paid for over 75 years in the insurance industry, real estate & 100s of businesses. Insurance commissions have been very small,around 30% of the premium when I started over 45 years ago.
Advisers never pushed or went on strike to ask for more commissions, we have no union membership to do so. Following the deregulation of the financial system, the insurers went on a spending spree. They offered 100% commissions and others followed, urging advisers to place business with them and also offering takeover terms if it is a clean skin. Plus insurers employed various CEOs and various managers million dollar packages. Where is it the fault of Advisers here Mr Trowbridge? I love to have an open debate with you anytime on these facts, plus I will pay for the cost of the venue, Mr Trowbridge. You will go down in history as the man who prevented ordinary Australians from having a Life Insurance Policy based on their affordable needs. Shame on you Mr Trowbridge.
David Whyte – its actually difficult to produce the statistically significant evidence. Why? Based on experience I very seriously doubt that any manufacturer would want it made public about some of the considerations that have gone into the pricing of products.
Ideally every risk product on the market (same applies to investment actually) should be at a standard wholesale price available consistently to every adviser. No inbuilt commissions, overrides, marketing allowance etc etc. That way it would make it much easier for an adviser to charge purely according to their actual effort. And that means the cost disclose product and advice costs separately and then total cost to the client will be about complexity of solution and advice and not just size of policy.
But whilst I’m saying many advisers are charging too much for their advice based on the traditional commission model it also flows on to the direct model. Because adviser led insurance premiums are too high due to the inbuilt adviser remuneration component the direct models are currently very overpriced because they are only benchmarking their price against the adviser pricing.
What I’m saying is that if the insurers priced their products at a standard wholesale level for all distribution channels the premiums would be much lower and the same across direct and adviser. The direct distributor or the adviser would then add their service / advice fee on top of the premium – true transparency. It’s not rocket science.
Insurers have tried to branch out from advisers but simple, direct products have failed. They have high lapse rates, their product offerings are low quality and expensive. Advised products are high quality, offer plenty of options and are well priced. The model DOES actually work in the high cost, high compliance market we have right now.
[quote name=”RT”]Absolutely fabulous and truthful remarks by Trowbridge!!
He has described perfectly the current state of the insurance industry and why it is where it is.
Participants in the industry need to get out of the glasshouse and accept that the risk business is not rocket science. It could very realistically be replaced by robo-advice except that in some cases (and far from all cases) it does need really professional client centric advice for it to continue – this is the domain of the true risk specialist not the part-timer.
The industry needs a harsh reality check and conversations like Trowbridge’s need to continue with fear of cracking a few egg shells.[/quote]
I met a guy today who had IP with Australian Super for $10,000 per month. He had cancelled his old AMP policy which was the same amount and agreed value. He was stoked that he had outsmarted the need for advice and managed to save over a third on his premiums all by himself. Turns out his new policy is indemnity and as a farmer he’s had a few rough years and couldn’t verify an income of more than $40kpa over the last few years, meaning his new cheaper Australian Super policy which he did via DIY and their call centre, isn’t worth anything if he falls ill or gets injured in the medium term…
Does that back up your views RT or does it confirm how wrong you are about no value being added by good advisers?
[quote name=”Greg”]Insurers are captive to advisers is precisely the reason why I have not purchased life insurance. The commission paid to the agent / adviser exceeds by a long way any value the agent might add. I have searched for agent free online life insurance without success. I hope this review breaks the agent / insurer deadlock[/quote]
OR…..
Just go and spend several years getting qualified as an adviser and gaining the wealth of experience and knowledge we have and then you can write a commission free policy for yourself with no advice fee either.
Since you seem to think there’s no value in advice and clearly know more than advisers (since you’re so smart to have no insurance in place…) this could be a perfect and simple and easy option for you?
[quote name=”Greg”]Insurers are captive to advisers is precisely the reason why I have not purchased life insurance. The commission paid to the agent / adviser exceeds by a long way any value the agent might add. I have searched for agent free online life insurance without success. I hope this review breaks the agent / insurer deadlock[/quote]
GREG, I’LL DO IT COMMISSION FREE FOR YOU MATE… But there’ll be a once off advice fee of at least $3,300 to cover the cost my business incurs in preparing and providing and implementing the advice.
Sadly, the ‘value’ added to you is not necessarily correlated with the costs my business incurs in managing all the red tape and legislative requirements.
Now do you get it???
I am yet to see someone propose an alternative remuneration structure (to commission) to compensate advisers for prospecting. It is our prospecting that convinces clients foregoing current consumption to pay a premium for a potential future benefit that they may not see the fruits of. It is not rocket science, if consumers were sufficiently motivated to do this for themselves, we would not need advisers to prospect and people would be lining up outside the insurers doors!
And John, I do not accept your assertion that commission “just cannot work”. To the contrary, you were in possession of irrefutable evidence in ASIC report 413 that commissions can work in aligning the best interests of customers and the remuneration of advisers. I am referring to the results of advice quality when using a Hybrid and Level commission structure that demonstrated a 93% pass rate (that which you conveniently ignored).
guys read this article in this IFA it talks about how after radical reforms in UK no one can afford advice
UK industry tackles advice gap
Guys we are all F###@!@#D the FSC AFA FPA have won the greatest legislative victory in the history of democracy the day the LIF legislation is passed.
I am looking forward to the reaction from the Insurers when there sales hit rock bottom in the next 12 months and suddenly they will understand they got what they wished for as they will not be paying commissions because no one will be writing new business.
RT – if Trowbridge or anyone else produces statistically significant evidence that substantiates the claims, I’d endorse your comments. Commission “very often” inadequately represents the value added by advisers. Mr T may not have an axe to grind but he’s on a mission, and it favours some of his paymasters. Why isn’t he commenting on the expense allocation of other business models to their life distribution efforts to show the alleged comparative disadvantage consumers suffer by using an adviser?
Greg’s comments may be slightly ill-informed but they do show what a lot of people could be thinking about the industry. Despite not agreeing with his full commentary I think perhaps in this case the more minus’s he gets the more validity his comments have.
Like his comments or not I don’t think we can argue that the commission very often does not reflect the value added by the adviser. As I said in my comments earlier there is a place for professional risk specialists who more often than not are remunerated in a way consistent with the value that add.
Trowbridge is no fool and has no axe to grind with anyone so his comments need to be considered very seriously by industry participants.
The fact that there is so much passion in the comments people are making that I cannot help think that many know he’s correct. 25 years in the business and working with 100s of advisers and multiple providers and licensees has me agreeing fully with him. We should stop trying to pretend we are all above reproach and accept some hard truths.
Unless there’s a best interest requirement at which point commission is irrelevant.
John’s either not the sharpest knife in the drawer or he’s obviously still working for the FSC.
@Greg. In the same way drug companies are captive to Doctors and Pharmacists! People are free to go down the self medication/self prescribing path just as you are free to go direct to an insurer of your choice. Simply fill out the application and submit. How easy do you want it, seriously. Go direct and you will be responsible for your success or failure of self diagnosis and self prescription. Advisers by the way don’t care about insurers they care about clients and their families. Download an application today they are all online.
Trowbridge is the FSC – he was paid several hundreds of thousands of dollars and would have implemented all of their recommendations if left to his own devices. Just look at who was on the policy board devising this report- its so self fulfilling – lamentable yet laughable.
Absolutely fabulous and truthful remarks by Trowbridge!!
He has described perfectly the current state of the insurance industry and why it is where it is.
Participants in the industry need to get out of the glasshouse and accept that the risk business is not rocket science. It could very realistically be replaced by robo-advice except that in some cases (and far from all cases) it does need really professional client centric advice for it to continue – this is the domain of the true risk specialist not the part-timer.
The industry needs a harsh reality check and conversations like Trowbridge’s need to continue with fear of cracking a few egg shells.
[quote name=”Greg”]Insurers are captive to advisers is precisely the reason why I have not purchased life insurance. The commission paid to the agent / adviser exceeds by a long way any value the agent might add. I have searched for agent free online life insurance without success. I hope this review breaks the agent / insurer deadlock[/quote]
Greg, you certainly could not have looked too hard….and the reason you haven’t bought insurance I suspect has little to do with your view of advisers but more to do with your view on those you leave behind especially if they have no other means of financial support?
[quote name=”TS”]#5 Greg, your comments highlight the real problem. Too many people don’t see value in the advice and will not pay for advice on insurance. So if commission is completely removed and advice is not paid for, all that is left (apart from worsening underinsurance) are crappy direct and group policies that have a huge decline rate at claim time as compared to advised policies. All clients that I have assisted in establishing and subsequently making a successful claim on a policy think the value added by me exceeded by a long way the “cost” of commission.[/quote]
Well said TS – you are spot on.
#5 Greg, your comments highlight the real problem. Too many people don’t see value in the advice and will not pay for advice on insurance. So if commission is completely removed and advice is not paid for, all that is left (apart from worsening underinsurance) are crappy direct and group policies that have a huge decline rate at claim time as compared to advised policies. All clients that I have assisted in establishing and subsequently making a successful claim on a policy think the value added by me exceeded by a long way the “cost” of commission.
John Trowbridge continues to blame advisers for the faults of life insurers. How quickly people forget the life insurance industry created advisers.
Until insurers take responsibility for their own actions and client experience and stop laying the blame on advisers we will not see the root cause issues addressed.
Sorry John I have to disagree again.
[quote name=”Greg”]Insurers are captive to advisers is precisely the reason why I have not purchased life insurance. The commission paid to the agent / adviser exceeds by a long way any value the agent might add. I have searched for agent free online life insurance without success. I hope this review breaks the agent / insurer deadlock[/quote]
[quote name=”Greg”]Insurers are captive to advisers is precisely the reason why I have not purchased life insurance. The commission paid to the agent / adviser exceeds by a long way any value the agent might add. I have searched for agent free online life insurance without success. I hope this review breaks the agent / insurer deadlock[/quote]
Greg you are either a stirrer or you have been conned. Insurers set the parameters which the entire intermediary system is operating under. However, the world has changed and there is a need to offer alternative options for those who demand it. Keep in mind though that anyone who receives advice and service has too pay for that service – most of the people who need insurance advice balk at the alternative fees and would rather pay a fully disclosed commission instead, that said we do offer the choice of commissions or a nil commission, fee for service model which covers initial advice, implementation and reviews. I’m prepared to give you some time to work out your options. Please call me on 07 3392 3676. Cheers.
Insurers have been pretty good at increasing premiums without worrying about the first mover disadvantage, why didn’t they reduce commissions the same way? I think they where quite happy with the status quo until they started to lose profit from group life claims aided by a fat legal industry who saw an opportunity.
I think the first thing that needs to be reformed is the ill-informed opinion pieces from people like John Trowbridge. Why someone who has no experience in giving advice, nor has he ever built a business in a community, is sought for opinion and to speak at conferences is beyond me.
Insurers are captive to advisers is precisely the reason why I have not purchased life insurance. The commission paid to the agent / adviser exceeds by a long way any value the agent might add. I have searched for agent free online life insurance without success. I hope this review breaks the agent / insurer deadlock
Mr. Trowbridge keeps making these statements without any substantive evidence whatsoever. It is merely his assertion that commissions automatically generate a conflict of interest – but he has no proof of this. He clearly scolds providers for not placing the policyholder as their primary customer and believes that advisers do not properly represent their clients’ interests. This is a direct attack on all intermediated distribution business models and the FSC should distance itself from these views. Direct selling product providers have a specific, valid, and viable business model; so too do those offices who choose to operate via the intermediary channel, and for Mr. Trowbridge to cast aspersions on one particular business model is unprofessional and inappropriate, particularly as he has no empirical evidence to support his opinion. Fortunately, a similar proposition in NZ has been widely discounted, and calls for the reform of the actuarial consulting industry have been made due to the lack of proper consideration of all relevant aspects.
What a load of rot. Risk insurance advisers are and have been price takers not price makers. The members of the FSC are the ones that have set the commission rates and encouraged advisers to “churn” policies, sorry I mean generate “new business”, as long as it was to their particular company or new series of policy. That probably wouldn’t have gone down as well at the FSC Conference.
Although “not a criticism”, to suggest insurers have “become captive to advisers” would be laughable if it was not so serious and that the FSC wants to hear from their champion (Trowbridge) that they are some sort of victim here.
To say that commissions “just cannot work” in the best interest of customers is just plain wrong. For most mums and dads that actually get advice about risk insurance, commissions work better than a fee for service arrangement.
Honestly as a 20 year veteran in this business I despair, the grand standing and pontificating over the ‘industry’ from people who are looking at things with little regard for the historical narrative – leads to completely flawed logic and reasoning, one cannot simply click ones fingers and create a sustainable model which also reflects a structure based solely on how one would prefer things to be. The 4 Corners report into Comminsure highlighted what a world without insurance intermediaries would look like – it will present a wonderful opportunity for LAWYERS – not a sustainable non aligned advice business. Mr Trowbridge and those at the FSC are completely off their collective heads if they think that getting rid of commission is the panacea to solve issues which have more to do with morality and ethics than how an adviser is paid. There were other ways to handle churn and biased APL’s – but none of that has been addressed – all the reforms have one target – THE ADVISER – and that is simply wrong and anti competitive – as a business owner who employ’s staff, pays tax and cares about our clients, I am both appalled and disgusted.
How have commissions been responsible for Comminsure rejecting claims on insurance policies sold by salaried employees of HESTA and Care?
Trowbridge has sold out his former independence and credibility, and become a shameless FSC lobbyist.