The report, developed by insurtech platform Key Person Risk Management, estimates the cost of removing commissions – which have been flagged as a possibility in ASIC’s upcoming review of LIF remuneration settings – across each key touch point between consumers and risk advisers.
Titled Advised Life Insurance – Commission vs No Commission + Direct and Group Alternatives, the report estimates advisers will need to charge consumers between $3,000 and $5000 for an initial review and implementation of life insurance advice on a pure fee for service basis, and between $600 and $1,500 per year to review their ongoing insurance arrangements.
The research also suggests managing a claim on behalf of a consumer – which advisers will now need to attain additional authorisation for under new legislation introduced to parliament last month – will cost between $3,000 and $12,000 depending on the type of policy being claimed on.
Further, the research pointed to recent Rice Warner and Zurich research that just 8 per cent of consumers were willing to pay more than $1,000 for advice around life insurance, indicating that commission removal would make insurance advice unaffordable for the vast majority of consumers.
“Fee for service makes insurance advice unaffordable for 90-95 per cent of consumers and forces them to rely on inferior direct or group insurance products that generally cover less, cost more and deliver poorer claims outcomes; or even worse, consumers will not bother with insurance at all,” the report said.
“If unsustainable reforms continue, the life insurance sector will collapse, costing the government tens of billions of dollars in welfare, job losses and lost revenue, with these costs and losses compounding into hundreds of billions of dollars on Australia’s economy over the coming years.”
Key Person Risk Management manager and director Brett Wright said the research pointed to the importance of allowing consumers to pay for life insurance through commissions if they wish.
“The report is not trying to argue life insurance advice should be solely funded by commissions. I believe there is room for fee for service (FFS) and the consumers who want and/or can afford FFS, can access this option already,” Mr Wright said.
“But FFS should not be the only option and it is essential consumers maintain their right to choose between the commission and FFS models, and decide which is best for them.”
A number of licensees and insurers have endorsed the report, with NEOS chief executive John de Zwart saying the data made the case for “appropriate and sustainable” commission levels heading into the ASIC review.
“In a professional advice industry, with strict regulatory and ethical standards, robust controls and oversight, the current commission model is both appropriate and sustainable,” Mr de Zwart said.
“Combined with DDO and unfair contracts legislation, consumer best interest is well served and protected. Further changes to insurance commissions will only have negative consequences for middle Australians with no alternatives except government welfare or inadequate group cover.”
Helen Blackford, chief executive of IOOF dealer groups Lonsdale and Millennium3, said the report also pointed to the consequences and risks of any further move on life commissions.
“If an industry construct is further created through decreased commissions where restrictions are placed on a consumer’s ability to access and afford advice, the social and community impacts will result in broader under-insurance, financial hardship for Australians in their time of need, and as a result an increased demand on the welfare system,” Ms Blackford said.
We now know who has lost from the LIF changes but who has actually won?
Underinsured or non insured clients : LOST
Advisers : LOST
Insurers : Thought they would WIN but have LOST
It’s fairly clear the regulators don’t have a real handle on the problem at hand and are ignorant of the fallout. Removing a means of paying for advice by removing commissions doesn’t serve the best intertest of the client – as stated in many of the posts this will simply leave the client to their own devices or worse not do anything at all – the end result being a continued and worsening pressure on the welfare system going forward.
And in relation to the administering/handling of claims – in my career I’ve seen many a TPD or income proitection claim take in excess of 18 months to 2 or more years to be settled and without any commissions revenue being paid the idea of charging a client an ongoing fee for this does not sit well with many advisers let alone clients.
It’s time that the regulators actually have a rethink on the position they take before they effectively killing off the industry and then turn around and say we couldn’t regulate ourselves.
“the current commission model is both appropriate and sustainable,” Mr de Zwart said.” No it isn’t. How much drop does this industry need in new business to demonstrate this??
What needs to happen is:
1. The FSC and ASIC need to admit they got it wrong with their corrupt dealings to bring the LIF about and cop the blame.
2. Companies need to stop endlessly increasing existing customers premiums and discounting new business premiums and encouraging a churn issue that was not there in the first place.
3. A reasonable 80/20 – 100/20 with a 1 year clawback will encourage new business to start again.
These dumb CEO’s need to realise that advisers are their lifeblood and most will be getting out between 2021- 2026 unless there is a reason to stay. Writing new business at a loss in NOT A REASON TO STAY!
“or even worse, consumerss will not bother with insurance at all,” the report said.”
“If unsustainable reforms continue, the life insurance sector will collapse, costing the government tens of billions of dollars in welfare, job losses and lost revenue, with these costs and losses compounding into hundreds of billions of dollars on Australia’s economy over the coming years.”
Many friends of mine don’t get motor insurance because they believe they are good risks and make a saving by not spending the money.
Taking out insurance is effectively a bet against yourself that you will need to claim, while most people don’t.
Saying the cost is going to be huge ignores the additional stimulus the saved premiums will have on the economy and is very, very biased. What about the additional tax revenue that doesn’t get funneled offshore? We have a huge deficit anyway, but is that next generations problem?
Hey ASIC, I only have one request from you as a Risk Only Adviser that is seriously concerned about the future of this industry.
If you are going to do everything in your power to singlehandedly destroy this industry, and run every NON-Industry Superfund financial adviser out of it with your unethical and biased methods, can you at least ensure the people in your organisation, responsible for the financial service industry’s total collapse, all stick around long enough to be held accountable for their decisions?
If you truly believe in the madness you have demonstrated the past few years, then doing anything less than standing by your decisions and being held to account for them should be the least you can do. The devastation you’ve caused the industry, advisers, product providers and most of all….consumers who now face higher advice fees and process hurdles than ever before are owed that.
I disagree 100% with this comment. Maybe you need to change your name title from Risk Only Adviser, to an insurance salesperson. We dont say car salespeople are car advisers now do we…
How can you disagree with the comment?
The Gov need to consider that they cannot realistically always be taking with both hands. Every now and then one needs to give back. THe simple answer is reduce the paper/compliance costs of Adviser. Reduce length disclosure requirements for SOAs.
The fees are the part of the cost structure that people who want to get rid of commissions forget about — you can argue with some of the figures but the logic is correct
Surely the government wouldn’t be stupid enough to let this happen. Then again past records says they will be.
The hit won’t be $15,000, it will be hundreds of thousands, as they won’t even take out cover…
100%
That hit then carries over to the taxpayer in the form of welfare.
Everything that was predicted by advisers to occur as a result of the implementation of the LIF has occurred.
….and this is at the current unsustainable levels of commission remuneration to advisers.
Any further negative impact to this remuneration will be catastrophic to the Life Insurance industry and consumers
The fact is that the commission levels need to return to at least 80/20 or potentially 100/20 with a one year clawback provision in order to provide a sustainable model . In addition, if only level commission is available for any replacement of a policy that has been in force for say 3 years or less, this would ensure the so called ” churning” issue (that was really not an issue), could be controlled.
The LIF was meant to deliver enhanced consumer benefits.
The advisers spoke loudly and very clearly against the proposed changes and the long term impact on the industry and their clients.
The decision was political, ideological and wrong.
LIF has been an abject failure and an experiment in negligence and greed.
It’s a pity that regulators and others did not bother to research what commissions were designed to achieve. Had they done so they would have realised that there was a benefit for all concerned. Now they scrambling to fix the mess. The Trowbridge report let everybody down.
Peter, with the utmost respect, the concern around commissions is the compounding premiums. You should do a comparison as ASIC mentions in several reports without the commissions and compare the difference from age 30 to 65, you will then understand how flawed the commissions model is and that insurance is incredibly unsustainable for majority of clients in the long term.
Commissions are just an outsourced cost for insurance companies. It is nonsensical to talk about the price of insurance without commissions, without adding back the extra costs insurers would have to bear themselves if they didn’t have advisers doing much of the implementation and servicing work for them. That additional inhouse cost just forces the price back up again.
If you compare the price of direct products with no commissions to similarly featured adviser implemented products which pay commissions, the direct products are usually more expensive.
The reasons why insurance becomes unsustainable for some clients in the long term are completely different. ASIC, as usual, is misrepresenting the facts to push a narrow ideological agenda that is disconnected from the real world interests of consumers.
Unfortunately ASIC and the policitians do not take into account the Best Interests of their clients. They are only looking for news headlines and their own personal career progression. ASIC are staffed by incompetent lawyers who became public servants because they couldnt get jobs with law firms and policitians are all only worried about re election and their jobs on the boards of chinese owned companies once their political life is over. Commissions are going to cease and 90% of advisers will have wasted their life in a profesion which has gone the way of the dodo.
ASIC does not care and their intention is to starve out and remove advisers.
ASIC IS CORRUPT.
A copy of the report is available here: https://brettwright572.lpages.co/advised-life-insurance/
Bit one sided there Brett dont you think?