Speaking to ifa, Mr Coyte said consumers “in general” will not pay a fee to receive advice on which insurance policy best suits their needs but would rather buy a policy as it is “human nature”.
“[Commissions] being removed from insurance is potentially very dangerous and not because ‘it’s a change from the way it always has been’,” Mr Coyte said.
“Given the internet and the ease with which you can compare prices of providers and the prevalence of direct insurance products, we have [given] consumers enormous choice,” he said.
In addition, given that advisers must be licensed to discuss risk insurance products, Mr Coyte questioned whether consumers were adequately informed to make their own decisions about insurance.
He also said the debate surrounding adviser remuneration has been “hijacked”, stating it is not how an adviser is paid that should be examined but rather their skills in providing advice.
“Rather than focusing on full disclosure, transparency and the value delivered by good advice, the emphasis has been on how respective business models charge for their services,” Mr Coyte said.
“In regards to business models, I believe the more the better and the consumer is then free to choose which model they prefer,” he said.
Zurich head of marketing, life investment, Richard Dunkerley said the industry as a whole should be aiming for a community which is “well informed” with access to quality life insurance.
“We also support the notion of choice for consumers; we believe consumers should be free to choose their channel and how to pay for their advice,” Mr Dunkerley said.
“There is little doubt that commissions do open up access to advice to consumers who would otherwise be unlikely or unable to seek it.”
“Research we conducted three years ago found 57 per cent of consumers would leave the market altogether if they were forced to pay an out-of-pocket fee for life insurance advice (instead of via commission) – even if premiums were cheaper as a result,” Mr Dunkerley said.
Bill….there are already many insurers who will not pay full upfront commission for either a large premium case or clients over certain ages ie hybrid or level commission options only (level commission especially for older lives).
Large or very large premium insurance cases take months and months of work,often involving many meetings with clients,Accountants and Legal advisers,liason and tracking of medical requirements and can often carry a high risk of not completing due to unforseen medical outcomes or recommendations from client’s Accountant to another referred adviser.I don’t think there are going to be too many people who are willing to pay the adviser a fee of $10,000 for 50 hours of work at $200 per hour and have no insurance cover in place.
I think the best option is to reduce max commissions payable to a nominal figure of say $3000 for upfronts. What I don’t understand is why an adviser will get paid 20,000 to fully insure a 55 year old manual worker but get 3,000 for insuring a 25 year old office worker. Sure, there may be some extra challenges getting the first one through underwriting and the chance of claim is higher but the difference in remuneration is unbelievably skewed. I remember sitting with an adviser who was struggling to figure out how to fit in the required insurance in to a clients cash flow, and when I discussed the concept of partially reducing commission, she looked at me like I had a screw loose. The premiums were over 20000.
Free for service for client who can afford it and commission a to a maximum so less wealthy can get advice makes sense.
It is paramount the consumer has access to a range of options and choice in relation to how they pay for advice.If the advice provided is in the clients best interest,satisfies objectives, is adequately researched, cost effective and meets full disclosure and compliance requirements, then the issue is not about how the adviser is remunerated,it is about the consumer receiving value, direction, education, guidance, commitment and advice that benefits them.
The people who are advocating a total ban on all risk commission,do not present independent, technical and documented examples to support their argument. They need to provide realistic,credible data on which they base their assessment,rather than translating personal philosophy about how they feel about themselves as advisers whilst treating the consumer with contempt by seeking to remove choice in order to suit their own ideology.
Commission is my pay for work done. I do not believe that my clients expect that I work for free. A fee based risk advice will not survive unless you are dealing with HNW clients. Whoever is advising on removal of commissions is only fooling himself or is totally ignorant of what we do. It is very easy to say: remove risk commissions – and replace it with What?
I only deal with personal risk – removing my remuneration is taking away my livelihood.
There is still a problem with charging commissions. I have spent much time educating clients on what is needed & why, engaging them & then when they want to invest in an insurance policy they do not want to wait the length of time it takes to do all the necessary compliance & advice documents, the application form, the underwriting etc. They just say to me don’t worry I will buy it online & go and buy the cheapest product. Who knows whether they have a product that provides enough cover, or the right features etc. The insurance company gets a juicy commission with no risk because of all the onsite disclaimers, I loose a client & a sale along with all the wasted time. Maybe I should just set up multiple websites to collect information with lots of disclaimers, then just place the insurance, get a new client that doesn’t need reviewing, get a juicy commission and I would be sweet. Except that’s not why I got into the profession. A sad state of affairs. Goodbye to all insurance advisers.
Commission or fee the client pays. Commission or fee, I chose the insurer I find best for that client. If I chose one insurer for Joe and another for Jill I get paid in the same proportion. Maybe control the % level to stop clients getting ripped off. I also see what some clients have paid as a fee-for-service and expire with rage at what little they got for such a high fee! Maybe thats where the screaming headlines “RIP OFF will come from next. Seem the opposite too there are generous advisers too . Anyone can get caught by a predator, laws or no laws, commissions or no commissions. Predators will find a way to rip off others despite all the laws think-up-able. The biggest rip-off is expecting clients to Do-It-Themselves – in their own best interests! As mentioned it takes us all our training and research and still be on-the-line for lawyers to nab us!
4-5 years ago group insurance focused on cheap premiums and call centre service. Massive growth. 40% cheaper than retail insurance, etc etc.
Now look. Premiums up by 40%. Massive claims blowouts. Re-Insurers pulling out. Claimants using lawyers etc.
So if commissions are banned for advice, what will happen?
Very simply, SOME clients WILL pay a fee for service. In reality though, this will be for a select demographic – let’s say the top 20-40%.
The remaining 60-80% will then be picked up by group and direct. The employer funds and large insurers will LOVE this.
With the shackles off, these Insurers will see SALES growth.
But what is the result 5-10 years after that when the claims start coming in?
These general advice (i.e. NO advice) models are YET to be proven. Let alone leaving claims in the hands of the insurer alone.
Commissions work in favour of consumers. No-one seems to be taking about this. Direct insurance policies of similar quality are priced the same as adviser directed policies. The insurance company picks up better quality business, so it is worth paying a commission for that. The client has their advice subsidised, which is great for them. And the adviser gets paid for their work. Any alternative model needs to be weighed against the positives, because the current model, while not perfect, is actually very good and overwhelmingly in favour of clients.
[quote name=”Susie Munro”]This is a question for advisers…
If all the existing infrastructure and business models didn’t exist around the way that risk policies are currently distributed, how would you do it?
Hi Suzie. I for one believe that the reason risk advice is difficult to deliver is down to the complexities of compliance its too complex and takes to long. The process should be simple almost like a Dr writing a script after an initial consultation, the problem is easily identified and the solution is fairly obvious. While it will never be that simple even a properly researched solution and appropriate advice should not be an onerous task. But that is what we presently have to deal with. The process can take weeks, as long as that’s the case the take up rate will be slow and few people will get advice. The whole process which documents the delivery of risk advice should be simplified.
I heard Tom Percy (WA Lawyer) speaking on radio this morning and being asked questions about how could laws be introduced to stop anyone being attacked as the police were attacked and stabbed yesterday. He said the laws are already in place and no laws could be changed that he could think of other than to make ‘bad laws’ that inhibited the free movement of people NOT involved in ISIL. Made me draw a definitive parallel with the financial planning industry. The recent laws to stop a Storm from happening again WILL NOT stop someone from ripping off clients if that is their intention just as any new law is unlikely to stop an extremist from repeating the actions we saw yesterday.
This is a question for advisers…
If all the existing infrastructure and business models didn’t exist around the way that risk policies are currently distributed, how would you do it?
I’m curious as to what advisers think is the ideal way.
The fact that so many Australian’s are uninsured means that something isn’t working.
Imagine a blank slate. How should it work?
I said it once and I’ll say it again, if commissions on risk insurance are banned then we will remove all risk related products, services and advice from our APL and service offering and stick with investment advice only. No person (or business) in their right mind would take unnecessary risk by providing advice on a product theyre not getting paid for – period! When the inevitable (and most unfortunate) happens IE Death, TPD then let the Dept. of Human Services and the government deal with that problem because it will be their own undoing!
I agree that most clients are unlikely to pay a fee and pay premiums.
The UK experience is instructive where commissions had to be re-introduced. Its my understanding that “the experiment” was disastrous for both clients and advisers.
Risk Advice is unlike financial advice where you pay a fee to set up everything and a small fee for monitoring and review.
Risk Insurance is a long term relationship and where costs are incurred to provide the initial advice, for regular reviews and at claim time. The Adviser is remunerated by initial and renewal commission.
The stress sending in a bill to a client’s family or executor after the medical bills, grief etc for helping with a claim is not going to go well.
The result will be that clients will go it alone on claims and appoint lawyers when the claims process goes wrong.
Surveying clients to see whether they will pay a fee in addition to premiums wont work IMHO.
Sorry to say that Risk needs to be sold. That’s a fact Jack.
Unfortunately, the compliance regime means that the payment for the work involved is rarely worth it.
In a word – ridiculous. How did it ever come to this ?
Good common sense argument which has been proven many times over. To ban the payment of commissions on risk insurance is a ridiculous idea and will only create issues around the access to ‘scoped’ insurance advice for families and small business owners. Some business models may elect to rebate comms on insurance where an ‘annual’ fee is paid for a packaged service, but I don’t believe that effectively limiting advice via a mandate re payment on these vital matters would be a protection to anyone, it would destroy some small advice practices and further increase the under insurance problem for the Australian community which ultimately puts the onus back on the community or family unit.
If an Australian doesn’t have insurance or the right type of insurance then they will be an additional burden on the our social security system, let alone the personal tragedy of losing everything if something goes wrong. Underinsurance is a big problem here and the Gov’t should do everything to encourage all licensed insurance advisers keep informing, educating and advising Australians on the need to protect themselves their family and their assets from un-expected events that do happen. Time and again it has been proven that the most effective way to educate clients to mitigating the risk they need to consider is through face to face advice. Commissions are the only way that makes insurance distribution viable for the time it takes to firstly educate clients on the need to insure themselves and then go through the process of providing the right product and assisting the client to remain protected over their lifetime. Anything else would be a disincentive.
I agree entirely with Mr Coyte. The commission structure for most clients is the only acceptable way the adviser will be paid. I tried providing risk advice on a fee basis and it was a flat “no” as the premium difference wasnt large enough. So either insurers must make some major changes or commissions should remain to avoid an even larger insurance gap in famillies and business.
I’m going to send my latest Risk/Super SOA to ASIC with a covering letter and ask them how the hell it all went so wrong with the provision of advice. Even the commission can not justify the time and expense in trying to insure a client and consolidate some risk and super. If I charged an hourly fee for the work involved in this case the client would have to get a loan to pay it…hang on a sec, lawyers arrange loans to pay their fees….maybe we can too.