The benefits of moving beyond limited APLs
Commercial agreements should have no influence on professional insurance advice, writes Renee Hancock.
Few advisers would dispute that an approved product list (APL) for super and investment products is essential, given there are around 150 fund managers in Australia offering 2,000-plus retail products (not to mention the different permutations).
It would be impossible for advisers to research and evaluate each one.
In comparison, there are 12 mainstream life insurers.
Despite the relatively small number of insurers, many dealers still have a limited risk insurance APL.
The rationale often given is that a limited risk insurance APL enables them to build stronger relationships with a handful of insurers, demand better service standards and negotiate competitive rates.
By restricting the number of insurers an adviser can recommend to four or five, these insurers should receive a larger, steady flow of new business in exchange for benefits like volume rebates, dedicated underwriters and claims administrators, and direct access to senior executives.
It’s a compelling proposition in theory but in reality, insurers don’t provide sub-standard service to licensees and advisers because they don’t have a formal agreement in place.
Furthermore, dealer groups are a broad church. They contain different-sized practices, different personalities and many different opinions. It’s hard to dictate to a senior adviser that they need to end a long fruitful relationship with one insurer and start building relationships with new ones.
The real winners in this are the insurance companies.
Advisers don’t win because their ability to provide objective advice and exercise their professional judgement (which is often based on decades of experience) is compromised, while clients unknowingly only have access to half the market.
Given every client is different and advisers have a legal responsibility to provide personal advice in the client’s best interest, there’s no way a licensee can accurately determine the right insurers for all clients in advance.
Let’s meet in between?
Limited-risk APLs have been around for about 10 years. Prior to that, advisers were more or less free to recommend the most appropriate product for the client, based on their knowledge and personal experience of an insurer’s ability and willingness to look after a client throughout the life of their policy.
But the increasing compliance burden and costs involved in delivering advice led to the rise of cut-down-risk APLs as dealer groups looked for new ways to generate revenue.
Perhaps an alternative solution to limited-risk APLs is a hybrid model whereby licensees have a panel of preferred insurers they would like their advisers to support (for all the reasons mentioned above) but advisers have the freedom and flexibility to select from the whole industry.
Some may argue that that’s effectively the case now, because advisers can apply for an exemption on a case-by-case basis to use an insurer outside their APL.
However, the awkward and troublesome process of gaining an exemption only adds to the compliance burden on advisers and staff. Open architecture would remove that unnecessary extra layer of bureaucracy.
Interestingly, the dealer groups that embrace open-architecture insurance APLs are generally specialist risk licensees. They understand the value and importance of giving advisers the autonomy to recommend the best solution based on the client’s needs and objectives. After all, that is the foundation of professional, personal advice.
They recognise that the product features, terms and definitions offered by insurers are broadly comparable, however, advisers can add a lot of value by evaluating qualitative factors such as ease of doing business and willingness to pay claims. That information can’t be found in a PDS or on a comparator site, but it’s exactly what clients want and need.
Renee Hancock is Head of Product at ClearView
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