This admission came about due to the insurance company members of the FSC providing ASIC with full market lapse data. A very different situation to the review of a mere 202 files from “a targeted surveillance of advisers who give personal advice” (ASIC’s own words in report 413). Unfortunately, for many of us engaged in risk advice this admission came about after the LIF was passed.
For most of us engaged in risk advice, we didn’t churn clients because we had no need to unless there were very exceptional circumstances.
We had no need to churn clients for two reasons:
- Moving a client from one company to another with the ramifications of re-underwriting is very rarely a good idea for the customer and, if we have done a good job in the first place, rarely necessary; and
- Before the LIF was passed, premium rates remained very consistent with the insurance companies.
However, since the LIF was passed we find ourselves in an impossible situation and we need help, guidance and some answers.
Since 2017 and after LIF was passed, the same FSC member insurance companies have all been increasing premiums at unprecedented levels for existing customers.
As much as a 15 per cent per premium increase and in some cases as many as three or four separate increases since 2017. I have some clients who have seen their premiums increase by as much as 50 per cent over the space of two years.
This, as we have been informed by the insurance companies, is because of “high claims experience”.
However, the same companies have all been reducing premiums for new customers by as much as 25 per cent for the same products.
I now find myself in a very different situation to the one I was in before the LIF was passed.
Nearly every annual review I do I find that premium rates (new business premium rates) with other companies can be as much as 25 per cent cheaper for my customers. Worse, if I were to “churn” these customers to the very same insurance companies they are already with, the premium rates could also be as much as 25 per cent cheaper (same customers, same occupations, same products).
My questions to FSC CEO Sally Loane:
- If your member insurance companies have to increase premiums for existing customers due to “high claims experience”, how are they able to reduce premiums for new business for the very same products?
- By reducing premiums for new business, that your members are increasing premiums on for existing customers for the same products, do you believe that your members are now actively encouraging a churn issue that was not there in the first place? This being in direct contradiction to what the LIF was supposed to be stopping.
- Why, during the consultation period, did your members not release the market lapse data to ASIC which showed that churn was in fact only reflective to a small number of advisers? Why did you wait until after the LIF was passed?
My questions to ASIC chair James Shipton:
- As stated above, the insurance companies are able to significantly reduce premiums for new business for the very same products they are increasing premiums on for existing customers, citing “poor claims experience”. How is this possible? And why is this not being investigated?
- If I am able to re-write (aka churn) a customer back to the very same company they are with or another company and save them 25 per cent for the same cover, then should I? You have offered no guidance on what is acceptable but I have a “best interests duty” to my customer.
- If I should not “churn” the customer, should I reduce the cover when they simply can’t afford the excessive premium increases? Both options will be classed as a lapse (cover reductions are classed as lapses) and reported. How do I avoid being doomed if I do and doomed if I don’t?
- In 2021 you will review life insurance advice and lapses again. Lapses are not reducing and in fact I believe they will have increased significantly because customers simply cannot afford 25 per cent plus premium increases. Will you be taking this into account in 2021? Will you be looking beyond 202 targeted files?
This is very wrong. I believe the insurance companies are effectively robbing existing customers to pay for their new business targets and encouraging churn with this practice.
Anonymous Adviser, on behalf of all risk advisers and risk customers
Still looking forward to a response and some guidance from the FSC and ASIC on the issues raised here.
Spot on! Will we get an answer from ASIC or Sally Loane?
Ok, a couple of points. All that has been said via the open letter is valid and does require a response from all parties. In relation to how can a insurance company increase premiums for exiting and reduce premiums for new clients. It must simply be a case of the new clients are taken on via a zero gain, in other words no profit margin at all as that’s been derived by the back book. What is very concerning is that for June financial year end 2019, the Income protection total loss across all retail insurers was $1.1 Billion after tax and excluding the re-insurers losses. APRA is aware of the losses and has requested via all insurers how will they fix this problem. Reducing premiums for new is not a way to solve the problem that is simply kicking the can down the road. We are in for a massive train wreck!
Shoddy analysis by a regulator.
Decisions made on the basis of faulty, lazy analysis need to examined.
Perhaps it is time for another Royal Commission into the regulators – ATO, ASIC and APRA.
Questions need to be raised as to their motivations and conflicted remuneration.
These bodies are costing Australians billions with their greed and ignorance.
[quote=Anonymous]So how are we going getting a response to this open letter? I’m sure that IFA have good access to the people that the questions are being directed too.[/quote][quote=Anonymous]So how are we going getting a response to this open letter? I’m sure that IFA have good access to the people that the questions are being directed too.[/quote] Being anonymous wouldnt improve the chances of ASIC responding to the (unknown) author.
As assumed, the gutless couldn’t-make-it-in-the-legal-world-as-a-lawyer so joined ASICk Joke haven’t even tried responding! You know they have a media watch division, so they would have seen this article, but yet again refuse to be accountable to anyone, least of all to those advisers that they are purposefully dismantling the profession around.
So how are we going getting a response to this open letter? I’m sure that IFA have good access to the people that the questions are being directed too.
So if each Insurance company is annually paying claims of hundreds of milions of dollars, that equals billions right? BILLIONS PER YEAR ENTERING THE ECONOMY IN SOME WAY.
So what will be the cost to the welfare bill, taxpayers, the budget and the general public when this is drastically reduced as a result of increased costs and less advisers causing less insured people in the community?
Not to mention (that as we are already seeing) the effect compounds so that those who can afford to remain becomes less and less and therefore premiums increase even more?
Does Treasury have any costings on this?
Sally Loane and the FSC are the Architects of the destruction of the Non-Bank advisers, starting with the commissioning of the Trowbridge and Sedgewick reports and then setting the terms of reference for the Royal Commission. The FSC members will make huge profits if they destroy, good luck negotiating with her.
Thank you Anonymous – totally spot on !
What strikes me reading the comments is that an industry that used to work together, is now fractured and full of animosity. It seems to me that all parties are feeling the pain, and blaming each other in various shapes and forms – never a good way to solve a problem. Would not Sally Loane and the FSC sit down with Advisers and have an open discussion about industry issues and seek to work together to correct? Has Sally and the FSC been asked?
The Kell quote here just said much lower, and I assume as low as 50 is the (unnamed) authors opinion. If one was get access to all of the insurers ASIC Insurance review projects, the numbers of Advisers found to be churning at least once, would be in the 100, if not 1000s. The remediation costs to the big banks tells the story.
The thing is, Advisers will say, I saved the client a $100 by moving them, so it’s not churning..except, they were overinsured, OR you didn’t pick the cheapest on the market originally, OR they dropped some features OR their health has changed and it was not disclosed OR premium rates increased, but you know all insurers will follow suite within a couple of years…so back to square one, but another opportunity to ummm switch. Hands up who’s Licensee put their entire insurance client base through the ASIC review and had to pay NO compensation…yeh thought so….
I actually put together a spreadsheet to compare the various commission types: Level, old up-front, hybrid, new up-front (70%) and new up-front (60%).
It turns out the new up-front 70 is equal to the old hybrid, in fact better over the long term. The two-year clawback is its main disadvantage, making year 2 a bad year to receive income for the adviser.
Everything else depends crucially on the discount rate an adviser uses to assign a value to a future income stream (future commissions). This takes account of lapse rates, inflation, increases due to age etc. If you use a low discount rate of 5-6%, then Level commission is the best if you look 5 years ahead or longer (or even sell after 3 years or later). New up-front (70%) is almost as good but old up-front (110%/11%) is much worse in the long run (unless you churn, of course).
You would need to apply a discount rate of 23% to make old up-front equal to old hybrid or level commission. That is a credit-card debt level interest rate. In other words, you would need to get $123 next year (guaranteed) rather than $100 now to be indifferent whether you receive the money now or later.
[b]The LIF changes are not so bad if you are in it for the long term but they have been devastating in terms of motivating advisers [/b]who were used to the instant sugar hit of 110% or even 140% up-front commission.
BTW – the above applies to stepped premiums. For level premiums, level commissions are nowhere near as good as the premiums rise much less in later years.
Christoph Schnelle (my name got lost for previous comments)
hear hear. should have spoken up peter (think that was your job). over to you now jimmy, side step josh please he is an MP (no value there), before more lapses occur. i will send you a copy of the oxford dictionary highlighting the word RISK, it actually has a meaning
Firstly agree secondly what gets me about the article is all the comments signed anonymous it’s sad that we are all afraid / courteous about telling it how it is
The tragedy in relation to all this was the solution to avoiding any adverse outcomes from the so called churning debate was to simply implement the following strategy:
This could have applied at the previous higher upfront commission rates prior to LIF.
1. Any replacement of an existing policy within a period of 2 years from the inception date of that existing policy would be subject to a Level commission remuneration model only. (ie 25-30% max….no Upfront or Hybrid).
Then, within an additional 1 year period from inception, only the Hybrid commission model could be accessed.
After 3 years from the original policy inception date, the full suite of commission options would then be available.
2. Any adviser who repetitively was found to have been replacing existing business within these time frames or over longer time frames, would be immediately placed on a Level commission only basis.
3. All Life Insurance companies should have been required to be committed to a charter and sign a memorandum of understanding that they would report repetitious policy replacement behavior to a central platform that could be accessed by all companies and a decision made across all companies to limit remuneration to a Level commission basis or effect a wholesale ban on the acceptance of any new business from individual advisers if found to be breaching acceptable practices.
This is all that needed to be effected.
The honorable and ethical advisers who consistently did the right thing and only transitioned client business when acting in the best interest of their client would not be penalised and their businesses could remain profitable with the client able to receive quality risk insurance advice and the appropriate product paid for via a commission basis that would support the cost of advice, compliance and product supply to the consumer.
Instead we now have a mess with ideologists attempting to destroy the fabric of an industry which will result in the consumer being unable to access quality risk advice at an affordable cost base and the escalating under insurance issue will rapidly become very problematic and place tremendous pressure on the struggling social security system thereby increasing the strain on the Govt purse and the taxpayer.
To state the complete obvious, this whole matter has been mishandled since inception and has been based on a web of unsubstantiated data designed to achieve an agenda.
The false perception that the lower the commission payment to an adviser will result in enhanced consumer outcomes is simplistic and ridiculous.
If this idea is accepted, it would mean that if an adviser was paid nothing, the consumer would receive quality advice at the lowest possible cost.
What an absolutely ridiculous notion.
The Life Insurance companies have been totally complicit in this process.
Only a few had the courage during the LIF negotiations to stand up and make submissions against the conflicted changes that were proposed.
The relationships with quality advisers were destroyed because it was obvious that loyalty,support and relationships based on trust meant nothing when it came to profit and shareholders.
For Kenneth Hayne to state his opinion in relation to the proposed banning of risk insurance commissions in the future is negligent and without substance.
There was no assessment or analysis of why this would be of any benefit whatsoever either to the consumer or the industry.
If a proposal is effected on the false basis of enhancing consumer outcomes and this results in the destruction of the industry that provides the quality advice and best outcomes for consumers, then what has been achieved other than the satisfaction of an ideological position ?
It is time common sense prevailed in this debate and it is time ASIC became a listener in order to achieve the best outcome for all concerned.
Frydenberg, ODwyer and their bank / life Co. Buddies conspired to dud advisers and lick their fat fingers at the thoughts of extra profit for all via junk direct Life insurance sold by back packers over the phone with zero advice, zero AFSL compliance and zero ethics.
But the RC absolutely butchering Direct Life Insurance has basically killed that approach. And so it should have, it was and remains a disgusting Rort.
Now direct Life Insurance isn’t really acceptable, what are the Life Co. Going to do to attract advisers ?
Wonderful work Pollies, FSC and ASIC. Hang your heads on shame!!!
We are reviewing the % base not these companies have increased amounts by and honestly it has been a shocking exercise last client I reviewed had a 48% increase in from 2017 to 2019 and the client ended up cancelling his insurance because said that doesn’t see the point of keeping this insurance at this rate he wont be able to afford the premiums
What a great open letter…excellent points made (or questions that must be answered).
What it also does for me, to some small degree, is reinstate my faith in karma i.e. the catalyst for everything that’s unfolded the last few years has always been the tainted, manipulated ASIC Report #413 to me which lied about adviser churn numbers, which lied about the impact on the industry and consumers with advisers taking an upfront commission and which lied about the percentage of compliance breaches across the entire industry. The life companies are now getting everything they deserved as a consequence of playing into ASIC’s game too.
I am now eagerly sitting back and waiting for ASIC and the FSC to provide honest answers to these questions…I sense climate change activists might stop annoying the public with their protests before that happens though.
The large players in this industry make me feel sick to the stomach.
It is incredible lesson in spin seeing the exposure of poor claims management at Comminsure et al for trauma clients being turned into a falsified story about churn caused by advisers on mass. The government and ASIC were either so out of touch, unwitting OR cosy to understand reality. (or all three more likely)
The public have a poor opinion of life insurers (and banks) and this is why. They sucker people in with discounts and then slam them with increases a few years in – the model will never be sustainable if you drive customers to lapse after a few years – it doesn’t matter how much you penalise existing clients. It should not be a selling point that premium rates will remain unchanged for 2 years (Onepath et al). Where is the accountability of insurance companies and their actuaries – how did they get it so wrong?
Advisers will always lack credibility in the public eye when we are forced to deal with these charlatans that masquerade as benevolent insurers.
Totally agree. The insurers are shooting themselves in the foot by increasing the price of in force policies to reduce the cost for new business. At clinet’s 2 year review i am BOUND BY BEST INTERESTS DUTY to look for a more suitable and affordable product. If i can save $1000+ pa for a client by switching to a competitors product then i am obligated by law and BID to do so.
But we all have to remember that all these changes are not intended to make insurance better/more affordable for the client. They are aimed at removing advisers from the insurance sales process so that the Insurers can push their junk policies direct to the consumer and then confuse the consumer at claim time (due to no adviser assistance) to get out of paying claims. Plus the consumer has no ability to accurately assess the quality of the policy or compare it to other policies and will ultimately choose based on price and marketing. Insurers will be then be able to write whatever insurance contracts they wish and get out of paying most claims.
Without the help of dedicated risk advisers a large percentage of claims would remain unpaid.
The overriding issue is Insurers need new business, rather than cannibalising the existing customers. LIF has only increased premiums for existing customers, increased policy cancellations, reduced Adviser incentive to write Risk, and increased Red Tape (again reduces adviser incentive). This means less Australians are taking up insurances. Coupled with increased claims, Insurers don’t have the new business inflows to support the claims.
Changes to default insurances within Super, and reduction in commissions are only going to mean more pain for Insurers. The government needs to take a more pragmatic approach and work with Advisers, Insurers AND ASIC to make the industry viable again.
Completely agree ASIC the FSC and governments involved have completely botched this industry up at the detriment of the Australian public and Advisers who require simple solutions to complex issues! Adding to this trying to regulate the fees that a client pays is also very concerning ! Name another industry that has its fees or what it xharges a client regulated?
Some great points and undeniable. Preach it from the rooftop everyone! LIF was a targeted raid on advisers with now real ramifications for clients as well. The upfront premium discounts are a joke and reeks of the tactics used by lending institutions on home loan borrowers.
How coincidental – just received the following information in email from AIA:
“AIA Australia is committed to protecting our clients, with more than 3.5 million Australians trusting us to protect their financial security each year. In 2018 alone we paid out $1.4 billion to Australians facing financial pressure and health concerns.
Recently we conducted a review of our claims experience and pricing structures on Income Protection and Crisis Recovery. Our review determined a need to increase premiums for certain in-force covers and the AIA Vitality program fee.”
My average in-force is 20 years which includes old AC&L association policies that pay 5% on renewal! Fairly obvious to ascertain that the cost of service to these clients results in a significant loss for my practice.
ASIC take note: Professional advisers understand the variation in policy terms and definitions and always put client’s best interest first.
I have a similar experience. This is exacerbated by the fact that some insurance companies now give initial and 2-year discounts. In addition other, regularly appearing ‘special discounts’ are given and it becomes a question of what to do?
I consider the insurance premium increases may be justified, especially for IP as other cover has gone both up and down in price but why the initial discounts? They are pernicious as it makes comparing policies much harder and the client needs to be carefully prepared for very large premium increases in year 2 and 3, especially if they are mid-40s or older.
There is also the issue that Asteron and AMP have gone end-of-life as well, which means that those policies are unlikely to be improved in line with the market.
Everybody is behaving as if the market is shrinking (increasing prices for existing customers, giving big discounts for competitive reasons, taking over rivals with reduced competition the outcome). This shrinking happened shortly after the old commission regime was stopped. That does not seem a coincidence. I think the current commission regime of 70/20 and level is much more sustainable (60/20 much less so) but the change had major, negative repercussions and now we are looking down the barrel of another review with uncertain outcome.
Who has benefitted from the LIF changes? Certainly not advisers but customers also had rising premiums and insurance companies are getting decreased volumes hitting their profitability despite the LIF changes being tailored to their collective preferences (with the exception of Zurich).
Perhaps the next review may consider taking a wider perspective? Perhaps commissions are actually benefitting all parties even though only one party (advisers) receives them?
what stop…unintended consequences resulting from completely overzealous reactionary review and policy, deemed important for the protection of a “consumer” they have never spoken to nor know well???? Get outta town@!!! I say again, perhaps sanity may have a chance at a return when the direction of this industry and its many facets is not in the hands of lawyers and policy makers so far removed from the reality, you may well as have a 3 yo call the shots. Politicians are equal in this blame, they love a headline that they think captures votes, care little for long term governance and take too long to respond when they know they should. So many small yet incremental steps could have been taken to keep the industry tracking in the right direction but ASIC/APRA/govt ALL have waited till something blew up and then blamed the Adviser for it, 5 inquiries and a RC was not the right way or the just way to deal with many of the issues. Round table discussions with all stakeholders might have done the trick and kept the integrity of the industry in better shape.
Here here..! Absolutely on the mark. Also for our own advisers with their head in the sand and buying this “professionalism” spin, let your work with clients continue to be professional as they have been in the past, otherwise they would not have done business with you in the first place.
Oh dear. It’s almost like the refusal of ASIC to enforce against the big players is having a negative effect on clients. Oh well, I guess it is off to attack a few more small fry players in order to justify massive budget requests.
Meanwhilie the cozy relationship between ASIC and the big players continues.
Well said. This is a serious issue that needs to be investigated.
Agreed. We have bureaucrats making decisions for our industry that have no idea of the real world. Like many others, I am so glad I am retiring soon. It’s no fun anymore.
Very well said. Bravo