A significant portion of risk specialist advisers has made no changes to their business models despite many of them reporting a reduction in profit, a new white paper reveals.
Research from MLC Life Insurance investigating the cost and efficiency of delivering life insurance found that while 67 per cent of risk advisers said they have experienced a reduction in profit since the introduction of the Life Insurance Framework in 2018, 42 per cent also said they haven’t made changes to their business model to accommodate the reduction.
Further, just under half (48 per cent) of risk advisers said they felt they were ready for the next phase of LIF to begin in 2020, while 33 per cent said they were not ready for the changes.
From 1 January 2020, maximum upfront commissions decrease from 70 per cent to 60 per cent (plus GST) for new life insurance policies.
The whitepaper also found that, on average, a total of 10 hours is required by a risk adviser to prepare and implement life insurance advice for a client in simple cases, and up to 15 hours for more complex cases.
Sean McCormack said that unless the costs are reduced, commissions alone would be unlikely to support the profitability of current advice models, impacting the number of Australians who are able to access advice.
“We strongly believe in the value of quality, lifelong financial advice and believe more Australians would benefit from receiving it,” Mr McCormack said.
“However, unless advisers can remove 20-25 per cent of the current cost base for each business, advice will not be profitable, leaving many Australians to make important financial decisions on their own.
“At a time when Australians are taking on an increasing debt, access to advice is critical for the prosperity of our nation.”
Life insurers need to help advisers more
The whitepaper also said life insurers need to do more to improve the advice process by simplifying and speeding up the policy application and underwriting process.
It found that the application process and client’s personal statement are seen as processes needing greater efficiency by 63 per cent and 53 per cent respectively of advisers, with criticism focused on the length and number of questions in the personal statement.
Policy administration (57 per cent) is also highlighted for improvement citing long waiting times on the phone for queries especially when managing existing clients, while the quote process (38 per cent) needed to be faster, with more automation.
In addition, underwriting guidelines needed clarification (37 per cent) and the process needed to be quicker with more pro-active third-party medical reports.
Claims time frames (35 per cent) needed to be shortened and a single case manager appointed. Advisers also said better software was needed for running reports.
Mr McCormack said life insurers must invest in technology to improve its efficiencies.
“The message from the whitepaper is clear: We need to improve the implementation and ongoing management process of insurance and use better technology to deliver greater efficiency to advisers and their customers,” he said.
“While this is only the beginning, we believe that delivering an efficient experience that is digitally enabled can reduce the cost of delivering advice and support advisers to ensure that their businesses can be sustainable in to the future.”
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