New business to decline under Trowbridge

In its Market Projections Report, the research house said that while detailed modelling of the recommendations had yet to be conducted, it is likely that if implemented they could lead to a significant reduction in individual new risk premium income of up to 30 to 40 per cent.

The research house added that the recommendations “shift the cost” of funding the initial loss incurred on writing new policies from insurers and onto the adviser.

“A typical cost of fulfilling the requirements for the provision of personal advice is estimated to be around $3,000,” DEXX&R said.

“To recover this $3,000 adviser new business cost per client, the average premium per client under the current up-front commission arrangements has to be $2,500.”

“Under the Trowbridge recommendations the average premium per client would need to be $9,000,” it said.

DEXX&R also added that under the proposed structures, an adviser would only cover their current cost of advice if they were selling to the top end of the high net wealth market.

“Servicing the middle income market would only be possible by advisers with access to significant capital resources and the ability to spread recovery of their first year new business costs over an eight or nine year period,” DEXX&R said.

“Taking into account the substantial increase in capital that each adviser would require to continue writing new business, a 30 per cent to 40 per cent reduction in new business if the Trowbridge recommendations are adopted in their current form may be a significant understatement of their impact on future new business inflows from the advice channel.”