Following the introduction of the Life Insurance Framework (LIF) reforms in 2018, which saw commissions drastically reduced, many financial advisers have been unwilling to provide risk advice, calling it a dying industry.
Speaking with ifa, Katherine Hayes, director and financial adviser of Hayes and Co Insurance Services and a director of the Financial Advice Association Australia (FAAA), argued that for the sake of the risk advice sector, insurance providers should employ “limited advice providers” to fill the gaps.
“As someone who’s a risk specialist, I can’t help but see the dangers facing the life insurance industry as a result of the consequences of the rapid changes that have occurred over the last couple of years,” Hayes said.
“The health of our life insurance ecosystem, I think that’s in a critically endangered zone, and while I think more changes are required, it can’t be left the way it is. Changes need to be made to return it to a healthy ecosystem.”
With so few new entrants to the advice profession and even fewer specialising in risk advice, Hayes explained that limited advice providers working for insurance providers could be a viable solution, helping more Australians access advice regarding their insurance needs.
“When we removed providers from our ecosystem, we removed a training ground, the base training ground, where a lot of advisers got their first introduction into the financial planning space,” she said.
“There is simply not enough people who are trained to give risk advice well, to service the existing number of policyholders out there, let alone take on new ones, and I don’t think small businesses or financial planners have the capacity or the willingness or the risk appetite to take on the people needed for that.”
Highlighting the lack of advisers providing risk advice, the 2023 Q4 Adviser Musical Chairs Report, released by Adviser Ratings in February 2024, found that just 480 advisers were responsible for writing half of all new life business in 2023.
Advisers remain apprehensive
While recognising that many within the profession are likely apprehensive about reintroducing advisers into insurance providers due to prior poor behaviour, Hayes said that with the right guardrails they could provide a necessary boost to the sector, servicing clients who may not be commercially viable for traditional advisers to take on.
“There needs to be guardrails in terms of which clients they interact with. For example, it could be if somebody doesn’t have an adviser, sure, they’re going to need advice, but if they do have an existing adviser, you’d be directing them back to their adviser, rather than stepping on toes,” she said.
“There’s always going to be elements of the market that advisers may not traditionally look at. If somebody calls up and says, ‘Look, I know what I want. I just want a half a million dollars’ worth of life cover’.
“Most advice practices would struggle to do that commercially, but a life insurer may be willing to take that on and cover that cost internally, and as long as the client is aware that if you’re going to XYZ insurer, you’re only going to get XYZ insurance product, then it’s OK.”
Commenting on the issue, Christine Cupitt, chief executive of the Council of Life Insurers (CALI), told ifa that if life insurers were able to provide limited advice, they would function alongside existing advisers, rather than replacing them.
“We want to see legislation introduced that allows life insurers to provide simple advice only on their own products, and only when customers ask them to. Of course, this requires appropriate limitations and strong consumer protections,” Cupitt said.
“Where people have more complicated advice needs, life insurers will continue to put them in contact with financial planners who can give them broader advice that compares products across the market. We want to complement the valuable work they do, not get in their way.”
With the second tranche of the Delivering Better Financial Outcomes (DBFO) reforms expected to allow a new class of advisers that can provide basic advice, Cupitt further stated that it would allow insurers to better provide for their customers.
“Under proposed financial advice reforms, this is the kind of advice life insurers would be able to provide to their customers when they ask for it, at no extra cost to them. We shouldn’t be turning people away when they ring our call centres. After all, giving simple answers to simple questions is basic customer service,” Cupitt said.
“Less than a quarter of people say they want basic information only, proving how critical the federal government’s Delivering Better Financial Outcomes legislation will be to giving Australians the kind of advice they want, when and where they want it.”
With so few advisers willing to offer risk advice, Hayes said that if insurers are willing and able to deliver the crucial service, then they should be allowed to do so.
“If the rest of the ecosystem isn’t willing to meet that need then I don’t think it should be standing in the way of those who are willing to do something about it,” she said.
“Does it come with risks? Absolutely, it does. But I think the risk of not doing anything is greater.”
She noted that, as current risk advisers reach their client capacity, a number of strategies are needed to address the needs of new clients, among these are limited advice providers.
“When it comes to the risk space, most advisers who are risk specialists, they’re getting to the point, because there’s so few of them, their risk books, their capacity to take on new clients is limited. They don’t have the capacity,” Hayes said.
“We need greater capacity to serve, and that will happen by new entrants. It’ll happen by efficiencies, both within the advice practices as well as on the insurers’ innovation and their tools that they provide. There’s multiple prongs that need to improve and need to change.”
Too long so didn’t read but from the headline rather than making the advice process in relation to risk insurance easier and more consumer friendly we will just let insurers do whatever they want?
LIF was supposed to reduce the compliance burden in exchange for the reduction in upfront commissions. It can’t be that hard to find a middle ground between the three options that currently exist:
(1) Direct to the product provider with no compliance requirements and no independence
(2) General advice which actually isn’t advice and is simply sending three quotes, which also has no compliance requirements
(3) Personal advice — Requires a fact find, the requirement to detail how insurance will impact on a superannuation balance in 30 years time if the premium comes from superannuation, a lengthy SOA, numerous client meetings to cover off the various conditions in the PDS and file notes that go for pages on the small chance an AFCA claim comes around.
I am one of the few specialist risk advisers left and I love what I do. What I find is that the best educated people have no idea what they are covered for let alone what they actually need.
I am not sure how these proposed limited advice providers are going to be able to assist clients with the structure of their cover, when they have to consider inside v outside of super, Any Occupation v Own Occupation, working out how much a self insured person could be covered for their income protection, whether to take the plus or standard Trauma policy, let alone the type of Income Protection product that they should hold, before even considering Stepped or Level premiums. Plus there is the field underwriting to consider, replacement of products, the list goes on and on.
Another question, would these limited advice providers working for an insurer be quoting the same prices as we do for basic life cover, would it include commission or be net of commission?
I also sat the FASEA exam back in 2019, completed my Grad Dip in Financial Planning, because at that time, my experience did not count, yet now to find out that the rules were changed and my experience was recognised, at least I now have a further degree.
Yes, let the insurers have their own internal ‘advisers’ and let them deal with their own internal call centres and internal systems and choke themselves to death with the excruciating torture of processing new business applications themselves.
Then the industry can be finished off once and for all.
There has never been a greater need for insurance and the industry has been completely destroyed by government regulation.
What about the novel idea around making it profitable and easy for qualified advisers to provide insurance advice? How about removing the excessive red tape from over the top regulation? How about increasing commission rates so advisers are fairly paid for providing advice? It was easy for the government and insurers to implement the poorly thought through recommendations from LIF, it would be as equally easy to reverse them. Providing insurance advice is unnecessarily difficult and costly. Fix that, don’t open up the service to unqualified and conflicted staff working at insurers.
You’re asking for far. far too much common sense from gubbermint and insurers alike. Remember it was these two genius entities that got together, colluded on price and drummed the vast majority of experienced risk advisers from the industry they’d built and loved, just as it had a chance to be officially regarded a profession. Fat chance of that now. Just look at the farcical hot mess into which it has degenerated! So we have these two ‘Benny Hill like’ entities killing off advisers and cutting commissions by more than half (all things considered). Surprise, surprise when risk business slows to a trickle and these clowns run around like headless chooks wondering what happened to all the business and how to fix it. They don’t even have the intelligence or resourcefulness to listen to those at the coal face (yes, still ‘some’ there’). Benny Hill would have been proud of this clown show.
Govt sanctioned and insurer supported cleansing programme based on falsehoods and misguided ideology has destroyed what was a vibrant and effective industry actively assisting Australians to recognise and act on their risk protection needs.
The Govt and the Life Insurers actively colluded to change the remuneration model on the basis of political point scoring and profit to shareholders.
The relationship between Kelly O’Dwyer and Sally Loane from the FSC was far too cosy.
This was a manipulated and conflicted outcome based on a completely flawed ASIC Report 413 to which the Govt and the FSC caved in to.
It is a failure of immense proportions and has left the Australian public unable to access high quality, experienced and professional Risk Insurance advice that is so desperately needed to protect their families, estates and businesses.
Well done.
Very well stated ‘Ropeable’, I couldn’t agree more. These people you mention should lose their jobs AND have civil charges brought against them for the catastrophic damage they’ve wrought to our once proud and vibrant risk advice industry. No chance now of it ever being classed as a profession, sadly.
There needs to a “Risk Insurance Only” FASEA Exam to help address the short fall. Until then, nothing will change.
Yes, I’ve been screaming this on these and many other pages since FARCE-IA began. Too much common sense foir govt or insurers to push that one. You’re right, nothing will change . . . unless it benefits those in power in some way. ‘Client Best Interest’ is simply a marketing term to the gummermint and insurers, nothing more.
Squeaky have you tried screaming on about this somewhere that makes a difference? Generally posting on these pages doesn’t really change much- if you are still actively advising in risk, my suggestion would be to lobby and make a change where it actually matters.