One of Australia’s largest licensees says it is facing a crisis as risk advisers exit the industry, with its annual life insurance new business dropping by $4 million in just 12 months.
Synchron director Don Trapnell told ifa the dealer group had seen its risk new business drop from $23 million to $19 million over the 2020 calendar year, as education standards and restrictive remuneration levels contributed to the continuing exit of risk specialists from the advice sector.
“We’ve got a problem with fewer and fewer life insurance advice specialists staying in the industry,” Mr Trapnell said.
“Right now we’ve got our politicians and regulator saying we have a problem with the cost of advice in this country and the panacea that is being offered is scaled advice. Maybe the panacea that should be offered is a revisit to the LIF scenario and a look at the remuneration model of life insurance advisers.
“If we want to reduce the cost of giving advice to the consumer, we need to be able to create a workable business model for the adviser.”
Mr Trapnell said ASIC needed to look at comparable markets overseas when conducting its review into the LIF commission settings, where commissions for risk advice were set at a much higher level and lapse rates remained similar to those in Australia.
“There are two markets in the world like Australia – the UK and New Zealand markets have similar distribution structures and products to Australia,” he said.
“UK commissions are anything in excess of 200 per cent down to 110 per cent, and New Zealand commissions about 180 per cent to 120 per cent. Australia’s are 60 per cent, so if the premise of LIF says high commissions drive poor selling practices, one would expect the lapse rate of New Zealand and the UK would be double the lapse rate of Australia.
“The New Zealand national lapse rate is 14 per cent and the UK national lapse rate is 13 per cent, Australia is the same, so the basis of LIF was predicated on a lie.”
Mr Trapnell said the disconnect between what consumers were prepared to pay for life insurance advice and what advisers needed to charge was locking the middle market of Australians out of the opportunity to purchase insurance.
“Advisers are walking away from any case that is under $3,000-5,000 – they just can’t afford to give the advice, whereas once upon a time it didn’t matter what the scale of the advice was because the averages looked after themselves,” he said.
“Our regulator and minister are stating that advisers need to start charging fees, but the disconnect is that the consumer is happy to pay between zero and $300 for advice that costs between $3,000-5,000 to give. So the disconnect is too strong, and the answer is to turn the remuneration to something that is workable to the adviser and is workable to the consumer.
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