Clawback relief on the cards as crisis worsens

In a forthcoming episode of the ifa Show podcast, Synchron director Don Trapnell said while insurers had been accommodating in providing temporary relief measures for policyholders early in the pandemic, lapses were likely to rise as the longer-term economic impacts of the crisis continued to be felt.

“As this thing digs deeper, and it’s still got a ways to run, we are going to see life insurance policies fall off the books,” Mr Trapnell said.

“The tragedy is the LIF was never designed to cater for a situation where consumers were forced to stop their premiums, so we are going to find the two-year responsibility period particularly galling for advisers.”

Mr Trapnell said one insurer had already offered to temporarily defer premium clawbacks for clients that cancelled their insurance during the crisis, but he suggested that such a measure would be “delaying the inevitable”.

“We believe if a lapse occurs, unfortunately the writeback is going to have to occur unless they change the law,” Mr Trapnell said.

“Insurance advisers have certainly rung my office and said ‘why can’t you get the company not to write the premium back’, but the short answer is it’s the law – it’s not something they have an option on. 

“The concentrated effort has to be on preventing the lapse as opposed to trying to manage the writeback, and the way you manage that is through premium holidays or cover suspensions.”

Figures released by Roy Morgan last week revealed that almost a quarter of the Australian workforce was currently unemployed or underemployed, as fears grew that the nation’s economic recovery would be hampered by a surge in COVID cases in Victoria.

However, Mr Trapnell said a surprising increase in new business among the group’s advisers was for the moment offsetting lapses that were occurring for affordability reasons.

“Coronavirus has forced advisers to adopt new technologies, so we’ve got a whole quantum of advisers who have discovered something new and we’re finding they are talking to far more clients now than they were before,” he said.

“As a result of that, more insurance reviews are being undertaken and more sales are being made. As time goes on and we get used to using this sort of media, I think we’ll find advisers are going to ease back on the amount of interaction they have, but right now we are seeing an uptick in new business as a direct result of coronavirus.”