According to Rice Warner, changes such as the widening of approved product lists, enforced within the LIF, could potentially lead to banks exiting the manufacture of risk insurance products.
“The impact on the industry will be significant,” a statement from Rice Warner said. “It is likely that more banks will follow the lead of NAB and exit the manufacture of life insurance to release capital.
“Expanded APLs means that [bank] advisers will sell more products of other manufacturers and less of their own brand. [Bank] customers will get better choice if more products are offered,” Rice Warner said.
Rice Warner added it expects the maximum commission rate of 60 per cent up front to become the standard “default commission” across the industry.
“Many life agents will moan about the reduction in up-front commissions but smart dealer groups will realise that the higher renewal commissions, being recurrent income for the practice, will add value to their businesses,” Rice Warner said.
Rice Warner added that amendments by the federal government to the Corporations Act to facilitate the “rationalisation of legacy life products” will lead to improved efficiency across the sector.
All these changes should lead to more competition and reduced premium rates, Rice Warner said.
“[But] if ASIC still finds problems in three years, there could be further measures to improve consumer outcomes,” the statement said.
When will this ‘tarred with the same brush’ fallacy that ALL bank planners ONLY use in-house insurance products die the natural death that it should? I work for a bank and I write as much business with other insurance companies as I do with the bank owned insurer. I have an APL that is broader than just a single aligned insurer, and can seek approval to use ANY other insurer in the market if I have a best interests cause to do so. As to whether banks will exit the insurance space – well, possibly that will happen if continuing in that product line causes an adverse reaction for share price/shareholders. But it won’t make an iota of difference to me – I’ll continue to look after clients and find them the right insurance solution as I do now.
I’d say it has more to do with a shift in global accounting standards. IFRS 9 will impact the way banks account for losses (expected rather than actual). With Insurance calculating “expected” losses on claims it means that insurance books will “look” like massive losses on the balance sheet of the bank. Investors won’t understand this and it will cause unease. NAB are smart to sell it off (ignoring the fact that they killed everything that was good about Aviva) because unless the others follow suit there will be a major difference between the accounts of CBA,WBC,ANZ compared to NAB come 1st Jan 2018. Stock researchers will be fine but mums and dads will wonder what is going on.