Banks 'likely' to exit insurance manufacturing
With the Life Insurance Framework set to take effect on 1 July 2016, Rice Warner says it will not only have a "significant" effect on advisers but also on the future of banks in insurance product manufacturing.
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.
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