Insurers have responded with caution to the recommendations put forward by John Trowbridge in his Final Report…
AIA Australia
AIA Australia’s CEO, Damien Mu, released an open letter to advisers last week, following the release of the Trowbridge recommendations.
… any proposed remuneration structure needs to cover the costs of a sustainable advice industry
In his letter, Mr Mu said the issues covered in Mr Trowbridge’s Report “… are complex and the recommendations could deliver significant structural reform and impact on the life insurance industry.”
In stating AIA Australia’s support of the need for positive change for the industry to continue meeting the life insurance needs of Australians, Mr Mu said his company’s view is that “…any proposed remuneration structure needs to cover the costs of a sustainable advice industry which supports access to advice, quality of advice, choice of product and value for all Australians.”
Mr Mu continued, “We believe further work, analysis and discussion is required in these areas to ensure the right intended outcome is achieved.
“We will review the Trowbridge report in detail as a matter of urgency and keep you informed of our views of the recommendations in the report, said Mr Mu, who added that the insurer remains resolute in its commitment to supporting and working proactively with its valued financial advice partners and the broader industry.
Suncorp Life
Joining Mr Trowbridge on a panel at the start of the FSC Life Insurance Conference, Suncorp Life CEO, Geoff Summerhayes, acknowledged the insurers’ role in the current industry issues.
“The manufacturers have created this situation, in terms of our remuneration structures. I think the manufacturers absolutely accept that it’s also our position to solve that… the payments are made out of manufacturers, so it’s up to manufacturers to face into that and to remove that misalignment.”
The manufacturers have created this situation
He described the Trowbridge Report as a “landmark report” for the industry:
“It will also be seen, in time, as a turning point for this industry. I am optimistic about the platform that John is proposing and our opportunity as an industry to grasp that.
“Structural change is difficult in any industry, and our industry is no different. It becomes even more difficult if you haven’t made the structural change in increments along the way. For a variety of reasons, our particular sector has been less quick to evolve than some other sectors of the economy and financial services.
“So when we front into the change that is now required, with the erosion of trust and confidence in the public debate, that change is painful. It’s painful advisers, it’s painful for licensees and it’s painful for manufacturers.
“I think it’s important that we digest, reflect, discuss and then move to action. Time has run out for this industry to continue to debate the merits of how to change to move forward. This now becomes a leadership issue for us as an industry – all sectors of the industry.”
Mr Summerhayes was a member of the Life Insurance Advice Working Group, in his capacity as an FSC Director.
TAL
Speaking during the final panel session at the FSC Life Insurance Conference, TAL’s incoming Group CEO, Brett Clark, said he was glad the report was finally out in the open.
“It’s out there now. It’s not secret squirrel conversations behind closed doors – it’s out there now, so we can deal with it.”
…it’s out there now, so we can deal with it
He said the proposals were comprehensive and transformational:
“We’ll talk a lot about the adviser commission and remuneration outcomes, but it will actually go well beyond that. It will go to most parts of our business and advisers’ businesses. It’s about how we market ourselves, our services – I think we will see product innovation, we’ll see underwriting innovation and innovation around product delivery.
“We should not underestimate the change it represents for us. We should be sure of ourselves before we move forward with pace… Importantly, we should understand what we believe to be the macro outcomes for our industry.
“When we saw the FoFA changes come through a few years ago, we saw seismic shifts in the way distribution organised itself. Was that all for the benefit of consumers? I’m not sure about that. I would caution us to reflect on a time where we saw some significant changes in adviser remuneration structures and think about those as we go forward,” Mr Clark said.
ANZ
Alexis George, Managing Director of ANZ Wealth’s insurance business told FSC Insurance Conference attendees that the release of the report was a “watershed moment” for the industry.
…we’ve been set a challenge as an industry
“We’ve got some debate still to occur on some of the finer points of the recommendations that John Trowbridge put out today. However, we have a stake in the ground right now, and I think, as an industry, we need to be responsible and move forward…,” Ms George said.
“Certainly we have to consider the economics for the industry as a whole: for our advisers, for our customers and for the insurance manufacturers, and understand the implications of certain decisions.
“But my take out is that we’ve been set a challenge as an industry; we can’t keep discussing – we do need to move forward. We have an expectation, not just from the regulator and the Government but from customers, that we are going to move forward, and I want to embrace that challenge.”
NAB
NAB Wealth Group Executive and CEO of MLC, Andrew Hagger, described the review process as comprehensive, and welcomed the release of the report.
It is important we work together…
“We recognise the report addresses complexities, recommends improved remuneration practices and aims to balance stakeholder interests whilst focusing most importantly on the needs of individual customers. We will now take the time to consider its findings,” Mr Hagger said.
“In 2014 we took the step to move NAB Financial Planners away from upfront commissions. Of course, to effect positive and lasting change we need an industry-wide solution.
“It is important we work together to engender trust and confidence in the advice process and ensure more Australians receive the advice and insurance cover they need.”
CBA
In a statement from Annabel Spring, Group Executive Wealth Management at CBA, the bank welcomed the report.
This is a comprehensive report and a constructive contribution to industry reform
“This is a comprehensive report and a constructive contribution to industry reform. We support the intent of the report which is to ensure the accessibility and affordability of quality financial advice and life insurance for all Australians. It is critical that the life insurance and financial advice industries work to implement sustainable remuneration structures.
“A life insurance industry code of practice which binds insurers, licensees and advisers will both improve outcomes for customers and the efficiency of the industry.
“We believe advisers need a choice of insurers and products in the provision of advice to provide a range of options to meet the best interests of all customers.
Ms Spring said CBA was carefully reviewing the report to understand and consider the implications of the recommendations for our customers, advisers and our businesses.
You can have all the reform you want, If the model is unsustainable then business’s will go broke.
What’s the point of deliberately sending a good business that providers a valuable service to its clients broke ?
Sure reform is overdue, sure it needs to be structural, and realistic with the clients best interest at its heart.
But why drive people out of business to do it?
Let’s rather have evolution rather than a revolution.
a much longer phase in period (say 5-7 years) with a measured change to remuneration would deliver certainty, enable businesses to restructure their loans and expenses, and allow for an orderly merger and acquisitions process that doesn’t harm the business or the client, allows for those advisers unable or unwilling toi stay in business, which would engender some kind of good faith within the industry,the adviser and the insurers, the regulator and the wider community.
this slash and burn mentality will see jobs (not just advisers) go, advice costs rise and the lower and middle income clients further marginalised. But I suspect that was never in doubt from day one.
Up front commission must go. It is no longer acceptable and is not an option.
Are you sure your not a Life Company CEO or board member?
Trolling Hard I See.
Reading through the insurance industry responses I get the feeling they can’t believe their good fortune of what they find in the Trowbridge report.
Personally I find the abolishing of upfront an excellent idea and even hybrid first year payments in my personal opinion are a little too high with subsequent years a little too low.
Trowbridge means a $4,000 policy will have 50% commission in the first year and a $10,000 policy 32% in the first year. Big policies tend to take a LOT of work and these amounts will not cover it. This means the client will have to pay extra which leads to a lower take-up rate.
As the ASIC report shows, many policies are set up very badly. Trowbridge’s recommendations mean that you will only get 20% level if you improve these policies within 5 years, as you should.
Currently the pendulum is far too much towards paying advisers to churn. Trowbridge goes a bit too far the other way – it basically says that insurance agents who don’t churn will earn 20% (my estimate) less. It will also take some 40%+ of the earnings of those who do churn. An example: A churner renews policies every three years. Currently that person gets 110%x2+11%x4=262% in six years. Under Trowbridge it is 25% first year (larger policies) + 20%*6 = 145% or a 45% drop.
I am not sure about the consequences on the consumer – many people take up the often dreadful direct policies (they are ‘underwrite-at-claim-time’ policies, leading to lasting damage most times a claim is denied). If Trowbridge leads to their market share increasing then his report will have caused immense damage to Australian consumers. Will this be balanced by less cowboys among insurance agents?
I presume all insurance companies are now modelling the impact of the Trowbridge report. As 90% of agents use up-front it would be interesting to see their assumptions about how many agents will leave and how far the average premium income will drop on a per-agent basis and the average premium income per agent will change and how much the profitability of their portfolio will improve. Will it improve? Will they do a sensitivity analysis? Are there plausible scenarios where their profitability (never mind how many Australians have enough cover) will plummet?
PS – as agents earn substantially less, will this make a difference at claim time? Will the insurance companies have to do more work? Will the scavengers who take over existing policies and return part of the commission to the client take over? The scavengers will not do any work at claim time. Will this lead to a worse claim experience overall, discrediting insurance in the minds of clients even more?
That sustainability is an issue for the Australian Life Industry is not a surprise and this has been caused in part by over generous rem structures for life advisers. This has also been caused by mispricing by life company actuaries who are apparently surprised that claims increase through a GFC. Note to all involved – sack these people.
We also have a responsibility period that encourages churn and obviously does not allow a company to recover the costs of onboarding and underwriting – not when you give away more than 100% of the premium.
So the Trowbridge report resolves this issue by giving Life companies an initial 37% cut in distribution costs as well as allowing them to average their costs through the life of the policy which should improve cashflow and reduce cost of capital. (The Advice fee is a red herring so exclude that in calculations – just reduce the premiums if you are serious). Additionally they wont pay shelf fees to licensees – another saving of 10- 12% on the initial premium – so all up life companies should be able to save almost 50% of their costs?
To Annabel Spring’s comment “We support the intent of the report which is to ensure the accessibility and affordability of quality financial advice and life insurance for all Australians”
Nope doesn’t do any of that – just improves life company profitability by shifting more of their cost on to advisers who ultimately will have to either not do this sort of business any more or charge the client the premium plus a reasonable advice fee to cover the cost of the advice, onboarding, underwriting, explaining eventual loadings and managing claims.
So we will have less advisers providing risk services, the clients paying the same premiums and very profitable direct insurance businesses selling expensive policies to unadvised clients who will be very disappointed when their claims are denied in arrears.
Maybe this report was never about improving affordability and advice – maybe it was about improving life company profitability?? Surprised? Many would be interested to know that the reason the report is released as only being the ‘Chairman’s opinion’ was that other members of the Committee like the AFA and John De Zwart refused to endorse the report as John was really just regurgitating the FSC’s Sub committee report. I wonder who was paying him and if there was a conflict?
No one is arguing structural reform but I would rather we went to zero commissions and reduced client premiums by 40% (leaving only a 10% increase for Life company bottom line profits). Then we can still provide real advice and make insurances more affordable.
The Banks and AMP have shown they have no interest in the IFA space and are building purely aligned and direct businesses where advice will be limited to product. Might be time IFAs removed their support from these conflicted businesses
Hmmm Interesting comment on “Chairman’s opinion ” The FSC certainly were gaming the Committee by pre-empting the final report
The Trowbrige recommendations, after you grind back the hyperbole of consumer benefit, are just a gouge by the big banks and AMP to get back the millions lost on ego driven the Group Life In Super frolic.
Lets go to 85-25% and move on
Hybrid Comm / Level Premium advocate.
Granted, many examples in ASIC risk review were deplorable – weed them out via audits, that’s also the dealers role right? Don’t move bad advisers onto another congregation like a priest…….. kick them to the sidewalk – if the adviser cannot understand the concept of ethics, and puts their own needs over the clients’ they just don’t belong in this industry.
Insurers, you are damn right that YOU created this remuneration problem which some advisers use to their advantage, and other have built their business models upon.
Insurers have had the past few years to knuckle down and toss out/restrict the churners, they know who they are, but they haven’t.
Insurers constantly update product to lift their so called rating, and provide opportunity for the churners.
Insurers close off books and increase premiums so the clean clients move on, and the needy ones who’s health has changed are stuck in a hard place with outrageous premiums they cannot justify or have restricted coverage or none at all after decades of loyalty. Shame on you.
Insurers tweak periodic discounts etc to lift their client share and profits.
Insurers now pay commission ON TAX portion of policy premiums paid by outside super fund – Are you for real!!
Insurers pay ridiculous commissions up to 145% FCOL to invite the churners to place business with them, and to entice new entrants to their companies.
Insurers create their own unsustainable models and use advisers as scapegoats when it all turns pear shaped.
Management of insurers/banks, take a good hard look at yourselves. You have had years now to correct the wrongs of the past, but no…. NOT ONE has taken a leading role.
Look at the issues you have created for the industry now. Its demise of sound advice will be your doing when all the experience leaves the industry and you’re left with non-loyal uni graduates.
Where is the thought for the underinsured Australian….we going to leave them to the wolves of banking general products; online/tv half baked products that don’t pay; and industry fund group insurance that is shrinking in cover but increasing in price as its “unsustainable”.
Looks to me like insurer self preservation wins again, or will we see the first to fall off this unsustainable perch soon?
These responses are all just fluff and bubble – marketing spin.
Imagine if each of these CEOs had to pay money each time they turned up to do a day’s work so every day they worked they were less financially secure and were actually losing money. I can’t see too many of them staying in that role and accepting that ‘improved remuneration model’ yet this is effectively what insurance advisers will be doing if the recommendations in this report are implemented – for every new policy they put in force, whether its for a new or existing client, the adviser will be losing money.
Who does that benefit exactly? Well, other than the insurers. Damien Mu and Brett Clarke will probably have nice bonuses because their company profits will increase since they no longer have to pay a reasonable commission. That is until there are no insurance advisers left in the industry and the retail insurance industry collapses.
It was a set up from start to finish. A loaded committee a change of direction in the last week.
sUMMERHAYES COULD NOT GET A STATEMENT OUT QUICK ENOUGH.
QUIETLY THE INSURERS ARE RUBBING THEIR HANDS TO GETHER WITH GLEE.
CHURNING IS ALL BULL ,IT EXISTS, IT DID YEARS AGO ,WE CALLED IT TWISTING THEN.
Like then the life companies can track the offender but would rather have the new business as in the past. I can only remember one or two incident where a cereal twister was refused an agency AND ONE WAS NORWICH in my state.
I contacted life companies twice when I new a twist was on. I new who did it, They did not want to get involved. This all since 2006.
ClearView has broken ranks from the pack and finally shone a light on the elephant in the room !
“ClearView Announces Adviser Proposals could spell end of Independent Advice, Consumer Choice”
“Proposals to legislate level commissions (FSI), or heavily restrict upfront payments and overall commission levels (Trowbridge) go too far and threaten the sustainability of independent advisers. These proposals will likely drive further consolidation in to vertically-owned groups.”
Churn is a minor irritant compared to the festering, gangrenous sore of advice that could be summarised as;
“you can have any of 13 vendors solutions but I am recommending my employers/ licencees”
You will get this advice in any high street in Australia why has ASIC not dealt with this flagrant breach of the best interest duty?
This is not about rogue advisers it is about policies enforced rather than promoted by major vendors.
The CEO’s of two of the principle offenders are LIAWG Members.
Paul Forbes seems better informed than I as to how the competing interests in LIAWG played out but it is clear Banks and vertically aligned business will be huge beneficiaries if Trowbridge does as ClearView think “spell end of Independent Advice”
Funny how the bulk of the respondents to the report are Banks or Direct Marketers.
If anyone ever needed more convincing that these institutions want to get rid of advisers… then look no further than their comments in this article.
It’s kind of interesting that if any of these institutions thought that running a sustainable life business for advisers was to lower remuneration, why didn’t any one of them show the way and be the first to offer advisers less for doing business with them.
It’s a rhetorical question and ranks with anti-competitive behaviour, collusion, and a form of Oligopoly
If these changes are implemented, look for less business written, higher number of claims, less happy clients and an industry that lacked the intestinal fortitude to stand up for the very things that have built their large property portfolios
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