Zurich’s paper, The Risk Advice Disconnect, which helped inform its submission to the royal commission, cites Rice Warner research around commission settings in life insurance advice markets around the world.
While noting that many developed economies have restricted general financial planning commissions to improve the quality of advice provided to consumers, the research reveals that most of these markets have excluded life insurance commissions from these reforms, with the exception of Finland, Denmark and the Netherlands.
“In each of these cases, studies have shown a reduction in the number of intermediaries that are most equivalent in those markets to the role that financial advisers play in Australia,” the paper says.
“Typically, studies have shown reduction in their numbers in the years following implementation ranging from approximately 15 per cent up to 30 per cent.”
The paper suggested economic constraints from the changing fee model would similarly push risk advisers out of the local industry, with a survey of 250 Australian life insurance advisers by Zurich revealing that almost half said their business’s revenue would be impacted between 50 and 100 per cent if fee-only risk advice was introduced.
Around 50 per cent of life insurance advisers surveyed said they would leave the industry if such a model was introduced, according to the paper.
The insurer’s research also revealed that a significant proportion of Australian consumers would not buy life insurance if an upfront cost was the only way to purchase a retail policy, with around 28 per cent saying they would ‘take no further action’ if they had to pay a fee for insurance advice.
Rice Warner modelling cited in the paper pointed to a $70 million increase in the government’s social security bill and a $2.65 million annual loss in tax revenue if retail insurance sales were to decrease by 50 per cent.
Zurich’s paper ultimately concluded that “commissions should continue to be allowable within the limits specified in the LIF regime” and that “advisers should be able to be adequately remunerated for the cost of providing advice at the time they provide it”.
The paper was provided to MPs by the AIOFP this week as part of its drive to engage both sides of politics on the current issues faced by the advice industry, as ASIC gears up to conduct its 2021 review of the LIF commission settings.
The association’s executive director, Peter Johnston, said mandating commission levels across all insurers had removed perceived conflicts and any further reduction or removal of risk commissions would make provision of advice uneconomic.
“If advisers can only be paid a fixed amount from all manufacturers, we suggest these circumstances mitigate the potential conflict,” he said.
“The other related issue is the massive increase to compliance around all forms of advice, including risk. It is simply uneconomic to deal in the risk area when consumers are reluctant to pay a sustainable fee for service quantum to meet compliance and profitability levels for the adviser to stay in business.”
The insurance companies could have had 80/20 but no insurer wanted to be the first to move as it would have cost them market share and to all act at the same time would never happen. So, fabricate a problem based on BS statistics and blame advisers for “Churning”. The Insurance Companies knew exactly who those advisers were and didn’t do anything about it. Now we have Idiots in charge of the Asylum, academics telling us how to run a business when they have never done so. In fact, most of them would not hold down a job in the real world.
Ahhh LIF is binding meaning they can’t offer 80/20. If insurers were free to offer commissions then you see competition there too.
I don’t know, I feel like progressive countries like Denmark and the Netherlands might be on to something. I’ve had a business idea so I encourage everyone to keep fighting, thanks!
A better question: o they still sell Life Indurance in Finland, Denmark and the Netherlands?
I think the Politicians have worked out that LIF is a disaster, have faith things will change for the better, we just need to give them an ‘out’ to save face.
Thanks Peter and I agree. Neither the FSC, the Insurance company CEO’s or ASIC want to admit that their dodgy dealings have backfired on them and that the LIF has been a disaster for consumers. None of them want to admit blame. The insurers though still seem to be clinging onto the hope that 60/20 and a 2 year clawback will stay for their profit but I’m not sure how much worse things need to get before they admit that advisers cant make a profit on this for new business. The insurer CEO’s just have no clear strategy other than constantly increasing existing customer premiums and discounting new business premiums which is farcical.
This should never have happened. Life Companies have shot themselves in the foot. Commission was originally designed to help advisers fund their business without having to charge a fee to the client. It was a win/win for all concerned including the consumer. I have had many claims where clients and families have benefited What a shame they fixed something that did not need fixing. .
Insurance commissions are inversely proportional to insurance premiums and rates of claim denials.
Sadly, this has become the reality and it’s going to get even worse. Commissions will keep going down.
Never any discussion about the regulatory cost of onboarding new insurance policies. Hence the growing gap in advice, that ASIC has created.
The 50% in the survey is much closer than the 30% in the first paragraph.
Now the insurance companies want to help (when there inflows / revenue is down) …… Insurance is not worth it at LIF levels full stop …..
Looking back Alex, I wish it had been 80/20 from the start
I think 80/20 was a fair rate for all. 60/20 is not.
Sure. In the face of the pandemic, compliance FASEA and further study, increases in cost due to compliance overreach, the current level of commissions makes it hard to surive on risk alone and their only suggestion is to further cause issue by contemplating removal of risk commssion….these fools have no understanding of how a supply chain works and with ASIC now talking about scaled advice, regardless of standard 1 2 and 6 of FASEA, we have lunatics with an agenda to smash the advice industry for the benefit of INSTOS. The consumer and their best interest does not matter. Its merely the marketing and spin once again.
Not “could” it “WOULD”
Unfortunately, as we’ve seen, you could have a 1,000 of these papers presented, but the powers that be only take on board the 1-2 non-arms length extreme left wing academic pieces that fit their agenda.
oh and it is the same “opinion” that they, ASIC, commisioned and payed for. ETHICS???
ASIC is CORRUPT.
LOL who in their right mind is going to pay for something that most likely gets rejected or offered unfavourable terms by the insurer? The Life Insurance industry is already dead.