Speaking to ifa about the state of the insurance industry, MetLife’s chief distribution officer Michael Mulholland said it is becoming increasingly difficult for advice businesses to serve all Australians in a cost-effective way.
“This is leading to a lack of affordability for advice for most Australians and contributing to the nation’s level of underinsurance in Australia,” Mr Mulholland said.
“This urgently needs to be addressed along with adviser remuneration structures, to help with the accessibility of insurance and to foster a sustainable business model for advisers to better service all Australians seeking advice.”
Mr Mulholland’s comments come after ClearView managing director Simon Swanson said the complexity within the advice process must be removed to improve affordability for Australians.
“An important step towards making financial advice more assessable and affordable is to simplify the advice process and remove unnecessary complexity,” Mr Swanson told ifa.
Meanwhile, in an address to the Insurance Council of Australia’s virtual industry forum in October, APRA deputy chair Helen Rowell outlined “looming” issues that the insurance sector must address in regards to accessibility and affordability.
“Along with an expectation gap, there is a clear protection gap looming that is potentially larger than perhaps we have observed in the recent past,” Ms Rowell said.
“This is not necessarily a problem confined to Australia and is one our peer regulators offshore also grapple with. Of course, it is entirely within an insurer’s rights to decide which risks to select, and which to avoid.
“However, when risk exclusion and avoidance burgeon across multiple products and insurers, it leads to prices that are unaffordable, or products that are simply not available. The obvious impact to consumer confidence, the wider economy and prosperity follows.”
Ms Rowell added that factors contributing to declining affordability and accessibility are complex and called for collective action from regulators as well as federal, state and local governments.
Risk is sold not bought due to its intangible nature, that’s why you need humans to deal with consumers, the Royal Commission found that out. Some digital solutions don’t work all that well and this is one of them.[c[size=16px][/size]olor=black][/color]
The mismanagement of the Risk Insurance remuneration strategy has been a complete disaster.
LIF was and will always be an orchestrated and manipulated attack on quality risk advisers which has resulted in nothing but unaffordable advice and unaffordable product.
The Life Insurers continue to whinge about low interest rate environment affecting their product cost whilst they are crucifying long term loyal policyholders by deliberately pricing them out of the risk committment and forcing them to cancel policies they still require.
All the while these same companies could have and should have stood firm with their loyal and supportive advisers when the ridiculous LIF proposals were put forward.
It has been negligent, mismanaged and strategically destructive.
If advisers had been left to be fairly remunerated for the specialist advice they provided, it would have resulted in strong and continuous new business inflows thereby providing a buffer around the increasing claims costs and the product pricing issues.
It has been an unmitigated tragedy.
The traditional ( existing ) distribution model is in its death throws. Insurance is a commodity and for the vast bulk of the market can be best served under a manufacturer direct model using robo-advice. But the rates should be stripped back of the adviser remuneration component. Rates should drop now. The more complex cases can be served by an adviser on a fee for service basis either as a stand alone requirement or part of a holistic plan.
I think we need to accept that the time has come for the “risk specialist”.
You are totally wrong to suggest that disability insurance is a commodity. Disability insurance policies vary greatly, and have lots of options. They need to be tailored to the purchaser’s situation, and regularly reviewed for continued appropriateness. Doing so requires expert advice, even if consumers don’t realise it and need to be “nudged” in that direction via the commission system.
However you are right in saying the existing model is in its death “throws”. (Spelling mistake aside). That’s because governments and regulators are doing their best to kill off professional financial advice, with insurance advice at the top of their hit list. As a result, disability insurance will revert to commoditised junk products sold by advertising. The products won’t be any cheaper, because advertising ain’t cheap. But the products will be less well aligned to the consumers’ requirements, and will have lots of tricky exclusions and restrictions that naive consumers aren’t aware of. Consumers will be much worse off as a result.