The consumer benefits of LIF
The LIF consumer benefit argument around reduced premiums lacks acknowledgement of some simple maths.
Don’t shoot the messenger!
But there is a danger here. The danger of fighting against something that is a fait d’accompli, and ignoring any self-introspection that takes into account, not a new regulation regime but, the plethora of external threats that can act to render the everyday life insurance adviser redundant. And that has nothing to do with how much the adviser is paid and how that payment is made.
But first LIF. The consumer benefit argument centres around, “If you reduce an adviser’s upfront income, the insurance company can reduce premiums”. Well, I am sad to say that this demonstrates a definite lack of acknowledgement of some simple maths.
Forget acquisition costs for the insurer and the model which we have all maintained. Let’s look at a simple example. If an adviser earns 110 per cent of the premium on completion, and 10 per cent every year thereafter, it means that after six years of the policy being in force the adviser has received (in simple terms) 160 per cent of the premium.
Bring in LIF and the equation changes to 80 per cent upfront and 20 per cent every year thereafter, so after that six years, the adviser would receive 180 per cent.
Where exactly are the premium savings going to come from? From the insurers willing to lose even more money? I doubt it. What about reduced lapses? Sure, there might be some benefit for the insurers, but that will go to mitigate the losses from a troubled DI book that is currently priced well below where it should be. If it was priced appropriately, in some instances premiums would double. Have a look at the new life tables that no one has actually used them to price because if they did, they would say goodbye to market share.
Now let me say, in scenario one (upfront commission), I fully support the advisers’ value that is delivered to the client and as such the level of income received. We all know that the average insurance case is around $2,500, and therefore receiving $2,500-$3,000 for the advice required is absolutely warranted. This is because the average time, with the current efficiency and process of insurance, to write a case is at least seven hours. Any longer and the adviser is losing money. Where the adviser writes cases of an average case size of $6,000, the LIF provides an appropriate level of remuneration. LIF for an average case means newer advisers without a significant trail book struggle, whereas those who have already migrated to hybrid are relatively unscathed.
If there are no premium savings, what are the customer benefits? This is when we must look at the insurers. Let me tell you why. If you accept that 50 per cent of new business to an insurer is replacement business (it’s actually higher than that) and that level of replacement is reduced, the insurer needs to think pretty quickly about something that will attract business. And without a premium lever to pull, this needs to be something like customer loyalty and engagement programs, additional and adjunct policyholder services, efficiency, simpler products, simpler underwriting, better adviser services that maximise adviser business efficiency and tools and resources that allow an adviser to engage their client more effectively.
That combination can act to reduce acquisition costs, attract more Australians to insurance advice and serve to build adviser businesses, resulting in more competitive, cheaper premiums.
Take away LIF and there is no reason to do any of the above (in an express manner). This is because for a well-run insurer that is working on internal efficiencies, a 110 per cent and 10 per cent model actually works pretty well.
In addition to the work an insurer will do to grab the attention of an adviser, advisers will need to deliver efficiencies and greater client engagement.
Technology plays a part here. If you can cut two to three hours in your prospecting, engagement, onboarding process per client, would you do it? If you can enhance your review offering, leading to more prospects and more sales, would you do it?
Yes, I work for a company that offers such efficiency. Yes, I am pushing a barrow here. But it’s a no brainer. My 10-year-old figured out SuiteBox within five minutes of our SuiteBox meeting. After I gave him the meeting control, he was screensharing with me a Pokemon game and showing me how to play it. Imagine sharing client testimonial videos, app forms, revised terms, SOA highlights, insurance calculators all live, with signing and recording functionality, in a private room to engage clients effectively.
If insurance companies do not look at a complete full chain innovation piece and if advisers do not innovate, and instead maintain the status quo, then watch out. Overseas players will line up and bring disruptive innovation and client engagement that will capture the attention and the wallets of Australian life insurance buyers, and I struggle with how someone using the current insurance process will compete with that.
Customer benefits in this industry are there for us to create and lead. They are not for us to expect to be delivered without any change to what we do now. Status quo for advisers and insurers is a recipe for disaster.
Andy Marshall is the regional sales manager APAC at SuiteBox Solutions. Mr Marshall is a senior associate at financial services membership organisation Finsia. He has 28 years’ experience in financial markets and academic research in psychology, neuroscience and financial advice best practice. He is the author of more than 200 practice management articles and holds a bachelor of science degree, diploma of financial markets and a diploma of financial planning.
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