In a panel discussion held as part of the roadshow, executives from life insurers TAL, Zurich and AIA Australia were probed by advisers seeking clarification of the three-year clawback policy.
When asked by advisers about what types of lapse would fall within the criteria for the policy, TAL general manager of retail distribution Niall McConville said a policy being cancelled due to a claim would not lead to a clawback.
However, Mr McConville added that if a policy were to lapse due to another adviser rewriting a client into a new product, or a client cancelling the policy within the three-year period, then there will be a clawback on the commission earned for that policy.
Zurich general manager of retail life and investments Philip Kewin echoed Mr McConville’s comments, while adding that he understood the concerns advisers have about the proposed policy.
“I know this is an area of concern, and there are circumstances where clients will lapse in the first three years which may be completely out of [advisers’] control,” Mr Kewin said.
AFA chief executive Brad Fox – acting as the panel moderator – said the greatest concern regarding the clawback policy was the lack of a definition of what constitutes a lapse.
“The issue is what is included in the definition of a lapse [and what isn’t],” Mr Fox said.
“A nice little starting point is to look at paragraph 111 of ASIC report 413, because that has actually defined a lapse and ruled out a number of things which – and I think advisers would agree – should be ruled out as a lapse,” he said.
AIA Australia’s chief retail insurance officer, Pina Sciarrone, then agreed that a set definition for lapses needs to be established.
Ms Sciarrone added that the cost of insurance policies is an area that needs to be focused on when looking at lapses.
“Affordability, which has been discussed [as an issue for the clawback period] is absolutely valid and we need to be looking at what does it mean in terms of life insurance lapses,” she said.
“It’s unwise to pay too much, but is also unwise to pay too little.
When you pay too much, you may lose a little money, that is all.
When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing you bought it to do.
The common law of business balance prohibits paying a little and getting a lot. It can’t be done.
If you deal with the lowest bidder, it’s well to add something for the risk you run.
And if you do that,you will have enough to pay for something better.”
John Ruskin.
If the consumer groups approach to the pure pricing of advice or product believe that the lower the price or cost,the better the value, they are dangerously misguided and doing every consumer of financial services a gross disservice by promoting same.
If the independent financial adviser cannot maintain a sustainable and durable business model to the consumer in order they receive appropriately priced advice of value and benefit, it will be the consumer who will be significantly disadvantaged.
This is the significant risk that is present with the current LIF proposal on the table.
Re your comment about UK experience Mr Normal, it would be interesting to know if the proportion of rejected claims also increased in the UK.
That will definitely be a consequence of the “reforms” here, as more people will use dodgy direct products with lots of fine print exclusions that enable insurers to reject claims. Which is exactly why the insurers want to make it more difficult and expensive for consumers to get advice.
One of the greatest tragedies of this whole LIF debacle is that consumer groups are supporting it! Most consumers will be far worse off under these changes. Let’s hope wiser heads in these consumer organisations grasp the big picture and intervene before it’s too late.
So will the life office executives now work for half pay ! (and the various associations involved in the carve up !)
Judging from the smirks at the FSC they reckon they conned the Minister pretty well
The sooner a teat case goes to the ACCC the better
Hopefully they can still learn from the UK disasters
Check this out:
http://www.wealthprofessional….
The UK implemented similar ‘reforms’, and now the proof is in:
1. Insurance advice is now more expensive to clients
2. Clients are therefore receiving less advice as it is too expensive
3. Advisers are going out of business
“This “experiment (of eliminating embedded comp.) has inevitably resulted in rising advice costs, reduced adviser numbers and a significant reduction in the delivery of financial advice”
But at least the insurance providers have made a good short term gain from the changes, the entire point of the ‘reforms’. Who cares if it proves that clients are significantly worse off, and small businesses are ruined?
I would like to know why my comments are not being published?
Very very very simple answer to all the crap being dished both by the FSC and the Life Companies.
Since Best Interest NO LONGER applies then advisers are forced to look after THEIR best interests.
The Life Company/ies that look after the advisers would also be looked after as well.
We forget so easily that their is NO Best Interest to the client ANYMORE!!! simple
What a magnanimous gesture on behalf on the Life Offices to exclude a persons death from the 3 year responsibility period. Why not make the period 5 years or even 10. Let’s just continue with this ridiculous proposal until the Industry implodes because the L/O’s will not be getting the required new premium to assist in the payment of claims. This whole issue is becoming just laughable but I do feel sorry for those in the Industry that will be under enormous financial pressures as a result of the proposed changes.
It appears that these Execs are saying something, but saying absolutely nothing at the same time.
For these people to state that it will not be defined as a lapse if a policy was cancelled due to a claim and not follow this comment and define all other instances that may be out of the advisers control that will also not be defined as a lapse is a disgrace.
If these Execs are so compassionate and “understand” the advisers concerns so much, then why don’t they stand up and show how much they understand by providing absolute surety of when a lapse will be defined and exactly when it will not.
Not only have the Insurers and the FSC played the advisers for fools throughout this whole process,they are still well and truly doing it, by demonstrating they appear to just not know where this is going and not a single one of them has the courage to stand up and say:
” these are the exact reasons we would not apply a clawback of commission to the adviser”.
What about when a claim is paid for TPD in the first year and the policy doesn’t actually cancel because it is linked to the Life Insurance component and the premium decreases by 50%?
Is this going to be treated as a partial lapse and the adviser penalised on the initial commission payment?
Quite obviously it shouldn’t be treated this way, but the insurers aren’t actually defining these scenarios because either they don’t want to because they just don’t know how they would administer it or they just don’t know……and either way, it is utterly unacceptable.
Sounds like a bit of a non-event really from this article.
They agree more clarification is needed but that is about it.
I agree with Dean and would like to add. Where does this leave the adviser financially in the following scenario;
Advisers are compelled by law to act in their client’s best interest.
Insurance companies will continue to add benefits and/or enhance their products trying to attract new business.
So when I do an annual review 12 months after I implemented a new policy I find that there is a more appropriate product available.
If I don’t make that recommendation because I am not going to get paid for my work I leave myself open to prosecution. If I make that recommendation I will end up out of business because I don’t know of anybody who works for nothing.
This is an issue as far as I can see, has not been mentioned let alone addressed.
My opinion of the Insurance companies is, they are acting in their own best interests otherwise they would have weeded out the churners long ago.
Attacking the advisers income is the easiest way forward for them.
Advisers are wearing the blame for the very low retention rate of the their direct market selling.
I am nearly at the end of my career having served over 40 years in it and I have never been so disgusted at the current Cartel type action by them.
And the crazy which hunt of Insurance Adviser Churners continues as the institutions use this issue to ramp up their direct insurance sales at the expense of the advisers.
Yet the insurance companies, ASIC, AFA, FPA etc have never been able to show any figures on churning. They all say it’s too hard to get the data as all lapsed policies get lumped into this category.
How any of this has been allowed to proceed without any real data on churning is one of the best CON jobs I have ever seen.
The insurance companies all know who the churners are and the insurance companies they all actively encourage it, when they get the business. Yet it’s now an adviser only problem, as per any problem every in this industry.
No one will produce the details of the churn problem as the problem doesn’t back up the current crazy changes.
Truly amazing how the institutions can pull this rubbish off.
So the AFA agreed to this rubbish WITH NO DETAIL
Who would buy a house without looking inside ?
Interesting -AMP put up LEVEL premiums on existing business yesterday by 10%. Does the adviser still cop a lapse if that happened in a Clawback period. Bloody hell yes!!!!
Thank you Minister. Thank you AFA
How benevolent of the Life Offices to rule out claims from the 3 year responsibility period proposed. This issue will go down in history as an absolute joke!
No one with any brains would be accepting of a 3 year contingent liability on their business.
RIP
What are lapse rates ??
The definition of a lapse should not include a “Claim.”
The issue of “churning” is still haunting Risk Insurance.
The issue of claims and sour investment markets is killing life insurance.
The cost of reinsurance is what ??? I note the Australian portfolio at RGA was costing the US $5 million dollars a day for at least 90 days.
The cost of writing poor business Pauline, poor underwriting and poor investments and larger than expected claims.
The winds of HIH are still blowing some 13 years later.
Kind regards,
Adrian Totolos.
Business Analyst.
What are the definitions ?
The real issue is the churners and they are not being held accountable. The answer is to add a legal aspect within the SOA that is enforceable and if the client is moved by another adviser–the client wears the clawback. Hardship and cash flow issues – maybe a thumbs up for using super to fund and minimise clawback. The issuers don’t have an answer and don’t appear to be looking at churners, therefore advisers need to take control via enforceable contracts.
Any other ideas???
I don’t think the 3 they had on the panel are the Advisers main concern
The AFA / FPA must get Macquarie (trying to do everything direct), and the banks – Comm-insure, BT, One Path MLC etc to turn up and face the advisers and answer questions.
We need to flush these out, as it is my understanding that the gap ranges from an insurance provider wanting advisers to receive no commissions up to a provider wanting no change to the current structure
My guess is that the ones that don’t show are the ones that have something to hide
It was a pretty shameful performance by all 3 of these FSC representatives, who tried to weave and dodge by blaming the government, and saying we’d all have to adapt and work together once the government clarifies the detail.
3 year clawback was designed and driven by the FSC. The whole problem could be easily fixed by the FSC taking 3 year clawback off the negotiating table. It is completely unnecessary to control churn, now that we have an enforceable best interests duty. Even before best interests, churn was easily controllable if insurers agreed not to accept and encourage obviously churned business.