Life insurers know exactly who ‘churns’ within the industry but company executives are too focused on their own sales incentives to address the problem, argues Fortnum Financial Advisers.
In a statement announcing the decision to adopt a fee-for-service model along with hybrid or level commissions from 1 July 2015, Fortnum has hit out at the life insurers for not acting on known advisers ‘churning’ their clients.
“There are advisers who churn and they’re known to the insurance companies who continue to accept business,” Fortnum executive chairman Ray Miles said.
“Perhaps part of the problem is how executives are incentivised to deliver new business growth,” he added.
Fortnum’s decision to adopt new remuneration structures – in an effort to “self regulate and ward off further legislative attack” – follows similar actions by AMP and Centrepoint Alliance.
Mr Miles pointed out the changes to remuneration were necessary to ensure a sustainable insurance industry. However, he added that advisers and licensees were not to blame for the industry problems.
“Advisers are price takers not price makers,” Mr Miles said. “We don’t set the terms for upfront, hybrid or level commissions nor do we set the policy terms or premiums, yet most of the blame for the industry’s sustainability issues are directed at the minority of advisers who churn.”
Mr Miles also said that if recommendations to cap commissions at 20 per cent with a maximum year-one fee of $1,200 were introduced, many advisers will “simply treat risk insurance like health insurance” and tell the client they need it but to organise it themselves.
“In many cases, advisers who derive the bulk of their revenue from risk will exit the industry altogether. The end result is that fewer Australians will receive insurance advice,” Mr Miles said.
He also urged the regulators to focus on the wholesale or group life market, particularly sub-par underwriting practices and automatic acceptance, if they wanted to create a more sustainable and profitable industry.
SUBSCRIBE TO THE IFA DAILY BULLETIN
- 15 Aug 2018CFS ‘retained’ adviser commissions: RCBy Killian Plastow and Tim Stewart
- 15 Aug 2018Suncorp urged advisers to maintain commissionsBy Jessica Yun
- 15 Aug 2018Hostplus spent $260,000 on tennis ticketsBy Tim Stewart
- 14 Aug 2018RC challenges NAB on ASIC interactionsBy Killian Plastow
- 14 Aug 2018Judgement issued in DomaCom SMSF appealBy Miranda Brownlee
- 14 Aug 2018Hub24 agrees to distribute Challenger annuitiesBy Reporter
- view all