Unrelenting regulatory interventions have led to the collapse of adviser numbers from 29,100 (Q1 2019) to 16,300 (Q1 2023). During that same period, new business in the retail life insurance market contracted by 37 per cent.
Personal risk insurance is not merely an add-on in comprehensive financial planning, it’s the linchpin. It serves as a financial bulwark for individuals and families, shielding them from unexpected financial adversities. Disregarding this critical element exposes clients to considerable risks.
In the grand scheme of things, we’re looking at a staggering 1.0 million Australians who are underinsured for death/TPD, and a whopping 3.4 million who are underinsured for income protection. It’s a sobering reality that underscores the magnitude of the issue at hand. The situation is further exacerbated by ongoing policy lapses and a trend among advisers to zero in on higher-value clients. This approach is leading to a steady decline in the total number of in-force advised policies. If we continue down this path, we’re staring down the barrel of a 17 per cent drop in the number of advised in-force policies by 2027. This downward trajectory will only widen the underinsurance gap, leaving more Australians vulnerable to financial hardship. It’s a ticking time bomb, and as licensees and advisers, we have the power – and the responsibility – to defuse it.
Advisers who sidestep personal risk insurance can inadvertently set their clients on a path strewn with potential financial landmines. Without sufficient insurance, an unforeseen illness or accident can escalate a manageable situation into a financial catastrophe. By advocating risk insurance, we can steer clients away from these uncertainties and fortify their financial future.
The psychological toll on clients who face financial hardship due to a lack of risk insurance advice is a reality we must not ignore. The financial strain is just the tip of the iceberg. Beneath the surface, there’s a torrent of stress, anxiety, and uncertainty that can ripple through every aspect of their lives. It’s a domino effect, with one financial setback triggering a cascade of personal and emotional upheaval. As advisers, we must remember that our advice (or lack thereof) doesn’t just impact the client’s wallet – it reverberates through their entire life.
The legal landscape for advisers who fail to provide comprehensive advice, including risk insurance, is fraught with potential pitfalls. The law doesn’t look kindly on negligence or omission. Advisers who sidestep risk insurance advice may find themselves in the crosshairs of legal action, facing allegations of professional negligence. The potential legal repercussions are not just a threat to the adviser’s reputation, but they can also lead to significant financial penalties. It’s a high-stakes game where the risk of losing is simply too great.
The choice to sidestep risk insurance advice can also impact the long-term value of an advisory business. Advisers forge their reputation on trust and their prowess in navigating clients through intricate financial terrains. Neglecting to advise on risk insurance can chip away at this trust, potentially leading to client attrition and a dip in business value.
However, the narrative doesn’t end at the potential risks. There’s a silver lining for advisers who elect to weave risk insurance into their practice. Risk insurance can be a profitable addition to an adviser’s portfolio, generating a consistent stream of renewal commission income. It diversifies income streams and bolsters profitability, contributing to long-term viability.
Beyond commission income, advisers can supplement their earnings with a well-crafted hybrid commission-fee model. While the prospect of introducing fees may seem intimidating, with effective communication, clients can appreciate the value they’re receiving. This strategy can result in a more stable income, less susceptible to market fluctuations.
Adding to the narrative, it’s essential to consider the role of your licensee in this equation. If your licensee isn’t encouraging you to bring risk back into your business, they’re doing you a disservice, and selling you short. The licensee should be your guiding light, illuminating the path to a comprehensive advisory practice that includes risk insurance. If they’re not championing this cause, they’re not just sidelining a crucial aspect of financial planning, they’re sidelining your potential for growth, profitability, and client satisfaction. It’s a stark reality, but one that needs to be confronted. If your licensee isn’t part of the solution, they could very well be part of the problem.
In the digital age, technology is a game-changer, making risk insurance more accessible and understandable for clients. Sophisticated platforms and tools can demystify risk insurance, breaking down complex concepts into digestible information. Clients can explore different scenarios, understand the implications, and make informed decisions. For advisers, technology can streamline processes, enhance client engagement, and ultimately, drive business growth. In the realm of risk insurance, technology isn’t just a tool – it’s a catalyst for change and progress.
Critically, if the prospect of diving back into risk insurance is daunting, there’s another avenue to explore. Many of our advisers are opting for a joint venture with an insurance specialist. This collaborative approach allows them to tap into the expertise of a specialist, ensuring their clients receive topnotch advice without the adviser needing to become an expert overnight. It’s a win-win situation: the adviser can expand their service offering, the specialist gains access to a new client base, and the client receives comprehensive advice. It’s a testament to the power of collaboration and a shining example of how we can adapt and thrive in the face of change.
In conclusion, the decision to disregard personal risk insurance is a gamble too risky to take. It not only leaves clients exposed to potential financial hardships but also impacts the long-term value and profitability of the advisory business.
Keith Cullen, CEO, WT Financial Group Limited
For the mass market, risk advice should be robo, this the only way to make it affordable and accessible.
The industry has done it self no favours with sloppy underwriting, some licensees pretending to be god making advice too complex just because they could not manage risk, and the smoke and mirrors attitude of advisors towards clients for what is a very straightforward proposition!
As an experienced adviser who was based overseas for 10 years, there is a lot the Australian insurance industry can learn from how they do it overseas.
Here are the 5 things that need to happen to save the life insurance industry.
1. Group Cover – No automatic acceptance for Group cover (or any cover). All applications for insurance should be pre-assessed and medically underwritten upfront…..End of story (if this sounds harsh, read point 5 before passing judgement).
The stone cold fact is that it’s just not rationale or sustainable for healthy members to continue to pay the cost for unhealthy members that will inevitably make a future claim. Group insurance cover via Super is supposed to be significantly cheaper than retail insurance for the very reason that it provides basic cover that is not tailored to the client’s individual circumstances. As it stands now, the cost of Group cover is exceedingly high, forcing many individuals to opt out or cancel cover all together, thus further increasing cost for remaining insured members. As it stands currently in many cases Group cover is more expensive than comprehensive retail cover. The price of Group cover is in part set by actuaries crunching the premiums received vs. cost of claims, so the rapid rise in Group insurance cover is in large due to the rise in the cost of claims, and drop in premium paying members. Ensuring that all cover is pre-assessed and medically underwritten upfront ensures the following: –
a. That those individuals that don’t qualify for cover don’t get cover. Thus, reducing cost of Group cover
b. Increases the successful claims ratio, which in turn kills off the ‘ambulance chasers’ (aka. Lawyers) that prey on those individuals making a claim who in many cases were denied because the assessment that was undertaken at time of claim. Lawyers taking 30% or more for handling a claim successfully, whilst at the same time litigating against advisers for not ‘acting in the client’s best interest’ is hypocrisy of the highest order… eliminating these ambulance chasers cash cow is as such a great added benefit of this strategy.
2. All medical underwriting should be completed ‘in person’ by a licensed medical practitioner. Overseas insurers have a panel of ‘approved’ GPs on their books. Australian underwriters should adopt the same. The applicant pays for the cost of the medical visit to the ‘approved’ GP clinic to undertake full medical assessment, and if approved for cover, the insurer rebates this cost out of initial premium. With the applicants consent that medical report is sent to the underwriter. The financial adviser is completely removed from the medical underwriting process, thus removing a great deal of liability that advisers should never be burdened with in the first place. The instance of fraudulence and non-disclosure is also dramatically reduced, thus reducing overall cost of insurance. As an added benefit, this process can save lives…. I had a several clients that I had instructed to wear their gym gear as in addition to full blood works tests, medical history assessment, they were going to be weighed and then put on a treadmill and given full physical assessment. I had one client that found out they had dangerously high blood levels that needed to be urgently addressed, a second that had irregular heart beat when under stress, and a third that was diagnosed with early-stage cancer. Unfortunately, all cases in these instances were declined cover based on these assessment; but the massive upside is that all lived to tell the story that their lives were saved because they had to undertake a full medical and physical assessment. None of these clients would have been detected were it not for the requirement to undertake a full medical physical examination in the presence of licensed medical practitioner as part of their insurance application process.
3. As is the case in many overseas jurisdictions, it should be mandatory for anyone taking out a home loan to also take out Life & TPD cover to the level of borrowings. The banks are required to take out mortgage insurance (LMI) for any lending they provide over 80% LVR. Ironically, it’s the borrower that pays the cost of this LMI to protect the bank (a rant for another day..), but it makes no sense that borrowers are not required to ensure they have Life & TPD cover to the level debt undertaken. You could even argue that LMI would not be required if it was compulsory for all borrowers for non-investment mortgages had to have Life & TPD cover to the value of that mortgage debt.
Given the amount of home lending, the pool of insurance would increase massively, thus extinguishing the chronic underinsurance levels in Australia, which in turn would dramatically lower the cost of insurance.
4. Commission rates should be increased to 110/33 making it a viable and attractive proposition for the financial advisory industry. The insurance industry could easily absorb the higher commission costs without raising premiums if they adopt the 3 points above. I hear the argument about commission payments, but if by law we are now all tertiary qualified, and supposedly acting in client’s best interests at all times, or if not, face a lifetime of internal damnation, massive legal costs, loss of career and reputation, … then where’s the conflict!? We are either a reputable industry that can be trust to act in our client’s best interest or we are not. If we are, then the renumeration model should be fit for purpose. In the case of the insurance industry this has got to commission based if we are serious about solving the chronic underinsurance problem in this country. Fact of the matter is people are not going to pay for insurance advice. But they will get advice if it’s affordable. You only have to look at the third party mortgage origination market which has carved out 76%+ of mortgage market to understand this.
5. NDIS, DSP and other government support services should be enhanced to provide the necessary safety net for those individuals that are not eligible or are declined cover and find themselves in the unfortunate situation of needing assistance. Ironically, it is the ever increasing cost of IP and TPD cover that is causing people to cancel their cover on mass, that is in turn placing a burden on the NDIS and other government assistance programs, which in turn again places increased cost on all taxpayers to fund these programs. If the chronic underinsurance problem is eliminated in this country through comprehensive take up of cover, the burden on the government support programs is dramatically reduced; thus enabling these support systems to be better funded and enhanced for those that really need it. It is the utter definition of insanity that we have a situation today where the cost of TPD & IP has got to the point where there are genuinely cases were individuals are better off remaining uninsured and directing surplus cash that they would otherwise fund insurance premiums with, are better directed towards debt reduction or investment and fall back on government assistance programs in the unfortunate time they may have a need. Worst still is the massive number of Australians where insurance is now just a luxury they can ill afford.
Anyway, all just pie in the sky as none of these measures will see the light of day. But from an experienced risk advisers view point, it is what has to happen if there is any future for the life insurance industry.
I wish your comments were rammed down the throat of the minister. But, evidently, he is probably far too clever to listen to us, pesky advisers.
I only have an issue with GP medicals – they’ll take forever to organise and the client will walk away. My last case took 11 months because the GP insisted on completing the PMAR with his patient.
“technology is a game-changer, making risk insurance more accessible and understandable for clients”. If so, why is new business down 37%? Sounds like a lame attempt to lure advisers back into the hard grind of selling insurance. Sorry, we’ve been burned many times and the institutions are just as culpable as are ASIC / AFCA / AFSLs, etc.,
Obviously life insurance is important for many people. However I’ll not be recommending it again as the government has made it too much of a hassle. It is laughable that the life insurance companies themselves supported the LIF changes – a momentous own goal.
Scope out risk = AFCA complaint for incorrect scoping
Scope in risk = Loss making exercise with a lot of work for no return plus significantly increased compliance risk given that the client may not adequately understand Page 124 of the PDS
Four solutions
(1) Leave financial planning — A lot have already done so and more will do so.
(2) Focus on HNW who don’t need insurance — A lot have already done so and more will do so
(3) Make it easier to provide risk advice — This was part of the LIF recommendations, it just got forgotten within 5 minutes of the upfront commissions being reduced and if anything it has become considerably harder to provide risk advice since LIF. In other words won’t happen with ASIC having no interest in it happening
(4) Increase upfront commissions — Won’t happen and realistically isn’t sufficient unless (3) happens as well.
…and then there’s the fact that existing life insured are just getting older with few new entrants coming in. Many healthy lives are opting to self-insure leaving the less healthy remaining in the risk pool… Insurance companies now imposing way tougher requirements to get cover as a result…its become too hard.
Lets cut to the facts, It is not that simple an adviser does all the work, SOA, Underwriting etc etc only to have a client declined at Underwriting No client wants to pay an Adviser a fee for cover they did not get.
Increased premiums + increased responsibility period + increased claim thresholds + increased compliance cost + decreased commission. Yes, of the 29,000 advisers, 12,800 have been flogged unmercifully and have bolted. Seems like the life insurers have ganged up to offer sub-standard products whilst eye-gouging existing clients.
100% SPOT ON !!!!!!!!!!!!!!
Dear Keith,
I agree with the broader thrust of your comments here – but struggle with the call to arms. – and whilst I acknowledge your genuine heartfelt concerns –
personal insurance should be in the mix for pretty much every client that needs to offset the possibility of loss – the industry has pretty much turned on itself.
The LIF review – Which when you think about it – was either planned by those driving the agenda. or wilful negligence on those seeking to implement the LIF Review
Those in the ivory tower have jumped onboard a narrative to “denigrate and disrupt anything to do with the conduct of business by an insurance adviser”.
The LIF review was swallowed by those with a vested interest, and, if there was actually a reason for the changes (other than it sounds like a good idea) it totally ignored commercial reality.
I, like many other “occasional writers”, have to invest a lot of time and effort to stand up risk cases – more so now with the loopy obligations of safe harbour and the FASEA code of ethics being in conflict.
Writing risk has been turned into a lawyer’s picnic. And the erstwhile compliance teams (read: sales prevention team = SPT’s) ) aren’t helping – they either don’t know risk
or have very little understanding that it’s a series of judgement calls.
Invariably with no background (the SPT’s) – they make risk work really challenging – in the effort to double guess every action. –( see the lawyers picnic analogy above)
invariably they are complex interdependencies and actions in every risk case, especially when writing for those professionally employed and it can be very much akin to herding cats.
As an adviser, I have to stand up in front of a client and attest to the fact – “this is a good company” – you can trust them to follow up on their word.
You Mr client – if you pay your premium against this policy – and you can rest assured you will be supported. We all know that it was Nirvana.
I am sorry, but CBA’s (vis Comminsure’s) actions in relation to the denial of substantial claims – to the extent that it was shown and that CBA owned up to that they had an orchestrated policy and people in senior leadership positions denying claims
(as highlighted in the Royal Commission) just crossed the threshold. – I have many other examples and I am sure you do too.
Even today – the single largest subgroup of issues with the complaint’s authority are the insurance cases.
More than 50% of the total work they undertake. In short, I am not taking the bullet for poor product management and lack of ownership.
I am not, nor will I ever be a foot soldier for the distribution arms of the life insurers we are supposed to work together.
I take my understanding of the role of the adviser is to look after my clients act in their best interests – and support them through life – as their life gets real.
to use some of the analogies you have employed – I am not taking friendly fire from the company that I think is going to be the best fit for the client because I have used their offering to support the client
(because we all know from basic training – friendly fire is more accurate than enemy fire)
For mine – acting in the clients best interest is to sit on the sidelines till the inevitable support of the adviser returns from the regulators and the powers to be – its too commercially risky otherwise.
Personally, I think the industry on its current trajectory is all but irrelevant – well certainly if not now, it will be out into the future. It wasn’t the case the previous 20+ years.
The funny thing is – I distinctly remember this point was said ad nauseum very much at the start of the process that followed the LIF review –
and we had the happy clappers – saying “it will be all good – nothing to see here”.
Then came the RC – Hard to find a better example of an own goal – self-evident after pretty much all the CBA, MLC, BT et al – have now left the picture.
For mine – there shouldn’t be a person in the decision-making line that hasn’t been a risk writer – poor understanding of what it takes to get the sale onboard.
transparency on claims – approved vs Claims denied from the key players in the field.
Anecdotally you would get a sense on which companies were more difficult than others.
I don’t really want to paint a gloomy picture – but we are not going anywhere until such a time as fundamental failures are addressed.
Stanley
I wonder how Ms Kelly O’Dwyer and the latest zealot Ms Jane Hume look back on the damage and destruction they have orchestrated. totally not accountable for the mess they created. A great performance from that party which should find itself aligned with business – as opposed to being a social justice warriors. Maybe they could both be Teals in lieu
Take it up with ASIC…..Any adviser offering Risk advice is a ticking time bomb. Risk Advice is dead.
No Thanks. ASIC and the commission have made SOA’s 10 hours long with the associated paperwork and its not profitable for us to advise on. Lower and middle income earners will not pay $3300 incl gst so we can at least break even.
Pretty simple put commission back up
Agreed. They should have settled on the old 80/20 hybrid. I predicted this would be the result of LIF etc. Greedy life companies driven by new investors from overseas. They all thought the premium inflow gravy train would continue but didn’t anticipate the education changes and so on.