John Trowbridge has responded to questions about cashflow issues in relation to his proposed remuneration model for life insurance advice.
In a conversation with riskinfo, Mr Trowbridge was asked whether he could advise the extent to which cashflow modelling had been taken into account in the formulation of his Reform Model remuneration recommendation which, in part, proposes a 20 per cent flat commission, supplemented by a capped $1,200 Initial Advice Payment.
Mr Trowbridge said modelling had been projected by a number of life insurers during the Life Insurance and Advice Working Group consultation phase. This modelling considered the likely fall in revenue for an adviser currently operating on an upfront commission basis, who shifted his/her model to a hybrid structure. He said these projections indicated there would be an initial reduction in revenue of approximately 20 per cent to 25 per cent in the first year; this loss being ameliorated in succeeding years, due to the increased level of ongoing commission the adviser would receive under a hybrid model.
In his Final Report, Mr Trowbridge states hybrid commission would continue to represent a conflicted remuneration model, which is why his eventual argument supports a flat commission structure. However, he highlighted to riskinfo the importance of the three-year ‘hybrid’ transition phase included in his reform proposal. During this period, Mr Trowbridge noted that while adviser cashflow would reduce, there should be no ‘value loss’ to the business due to the increasing level of annual renewal commissions. He also pointed out the modelling that had been undertaken by the life companies was conducted by them in isolation of what his final remuneration model would comprise, or how it would be structured.
Addressing cashflow associated with the eventual 20 per cent flat commission and $1,200 customer-based IAP model, Mr Trowbridge told riskinfo that any modelling should also be considered within the context of all six of his policy recommendations which he believes would lead to:
- A reduction in the cost of delivering life insurance advice (eg more efficient SoA structures)
- The prospect of reduced premiums for consumers
- Greater innovation in a more ‘client-centric’ approach to life insurance product offers
…most small businesses outlay more money upfront to secure a client’s business, recouping their costs and building their value over time
Mr Trowbridge emphasised that his flat commission proposal would represent a viable remuneration structure, free of any conflict of interest, real or perceived, on both new policies and replacement policies and which would also address the overall aim of aligning the interests of the entire value chain of insurer, licensee, adviser and client.
He added that a proportion of practices, depending on their advice proposition, are already charging fees for their life insurance advice. He also made the point that most small businesses outlay more money upfront to secure a client’s business, recouping their costs and building their value over time, based on customer loyalty and retention of the business.
Mr Trowbridge agreed that the nature of his recommendations represented a paradigm shift in how advisers should consider their future remuneration structures, and accepted his view and his recommendations would not be embraced by all stakeholders across the spectrum of the life insurance sector.
We will welcome and report on your comments and will also provide additional reporting on associated questions, including how new entrants to the life insurance advice sector would or could operate under the proposed Trowbridge Reform Model…
I am struggling to understand how a mandated reduction in Level rates by over 33% (each year) is at all reasonable.
How does this prevent the churn incentive which is clearly about higher payments in year 1?
This appears to me as a cynical move of the goal posts in support of increased profits for insurers – particularly those with their own extensive distribution channels.
Very well said Aaron.
The “prospect” of reduced premiums for consumers?
It’s open-season for cynics when it comes to risk adviser motives, but it’s all benefit of the doubt happy claps for the FSC-centric insures who MIGHT reduce premiums?
These are the same insurers who actually DID Trowbridge’s Rem model for him?
Who put Chopper in charge of the criminal investigation?
The Trowbridge report is totally discredited and was just an exercise in kite flying by the insurers. There should be one insurer who is willing to be first.
Let there be one insurer stand up and watch their cashflows crash and their board sack the CEO and management team as a result.
There cannot be any clearer example than MLC as to what happens to Insurers when they walk away from advisers and try and run a fee for service model.
Just a load of nonsense from Bankers who should know better.
Still its a good way to end your career as a Banker who wants to alienate the profit producers in the industry.
It’s seems here that advisers have been again shafted by those who purport to support us namely the insurers themselves. It is becoming clear that the insures have by stealth driven the cashflow argument without speaking to advisers and doing so to deliver the outcomes of sustainability (of their business) not ours. I would suggest that ever adviser requests from their insurer their submission to Trowbridge and then determine if that insurer is a true supporter of advisers or has been, as I suspect, most insurers have taken the cynical opportunity to reduce their greatest business cost at the expense of the adviser.
The Trowbridge Report raises some good ideas on how to remove churning from our industry. Both removing upfront commissions and restricting the movement of policies during a 5 year period seems reasonable.However the reduction down to 20% commission seems far too radical and would restrict any new entrants from being able to start their own practices.
we currently use hybrid and level policy commission as our model but will only use level for clients who we feel strongly that the relationship will last long term or the need will be long term. If we feel the client need for insurance is short term (less than 5 years) then we choose hybrid as level would mean a loss of income to our business.
Having the two options of hybrid and level works, however for the amount of work required to put in place a life policy the level commission is definitely a loss leader and would not be sustainable if we were a start up business.
I am hoping the industry is sensible and takes on the good parts of this report and removes the rest.
This is exactly my sentiment, I work the same model as yourself, generally I use hybrid or a One Path Stepped occasionally but love using a level term on a long term prospect client, Upfront is never in my mind unless I have a very iffy deal with a tradie needing cover for a worksite, I have build a solid trail but I cant see how a new adviser could survive unless they live at home in a home office and have no bills! Level at 20% is ridiculous.
I also don’t see how he comes up with a loss in year one of 25% or so, those doing upfront would be losing a LOT more than that, I can see myself losing 20-25% based on using Hybrid currently.
Why would Hybrid be conflicted, if you are churning and writing Hybrid, good luck to you, that’s not a profitable business and I imagine they will all be gone soon after anyway?
Good point Jason. Like you, I use hybrid in nearly all cases for the ongoing viability of my book, and those who will more than likely be a short term client use upfront (rarely these days). Changing to the hybrid model 2 years ago meant a 20-30% loss but double the ongoing than an upfront model.
Not supporting the ‘forced’ hand by Trowbridge, but I believe THIS is sustainable both for the adviser and the insurer, as the encouragement is there to keep the client with the same insurer in order to recoup the costs for future years.
I believe it’s been a long term plan of the insurers losing market share to those who actively persue the IFA market, as they will be the winners in all of this. Premiums will remain the same and they will still have their employed advisers and direct channel for new business.
Interesting to note that John Trowbridge quotes his modelling was taken from ‘insurers’ about advisers remuneration. Wouldn’t he base his modelling on an adviser based industry group such as the (disappointingly quiet) AFA?
I’d be interested to know how shaking up the fee structures is going to reduce the cost of doing business (result in more efficient SoAs?), reduce premiums to customers, or provide a more “client-centric” approach to products or advice. In fact I see it having the opposite effect.
Here’s an idea. If you want to stop “churn”, ban advisers who “churn”. Limit commissions on replacement of policies (within, say, 5 years) to 30%. If you want to make the provision of advise “cheaper” and more accessible for consumers, stop loading me up with red tape and compliance (which, by the way, does little but provide cover for less scrupulous operators to hide behind).
These things aren’t hard to do. My guess is they would get the support of 99% of advisers and we could move on to better things…. you know, like providing excellent advice and service to clients.
I like your idea here!!
LIKE
Any Business Coach will tell you it is a flawed model when acquisition costs exceed income generated.
We need to change the conversation to develop positive alternates to the current conversation
My daughter is undertaking year 9 business studies where she was taught I – E = OE. She asks regularly about the business I operate and I give her some tips. Her question to me during my conversation on this topic was ‘when E is larger than I, OE is negatively impacted. The whole purpose of a business is to achieve the opposite. How come this person can’t understand this’? Hmmmmm, my year 9 daughter gets it but this fool doesn’t. Applying this basic formula to an insurance proposal under Trowbridge’s model…… continually? OE either needs to be substantial to start with or it will be zero before too long. Hence good luck for new entrants unless they have a model which can defray the costs (aka holistic advisers).
With Trowbridge there is only a notion of “Profit” for the insurers hence he is nothing more than a puppet of the FSC. What is disappointing about this whole debacle is that the AFA (innocently or not) hung their hat on this review. Although I have to compliment them on joining the process, when the mandate changed at the last minute so that Trowbridge would provide “his report”, the AFA and their representatives should have smelt the dead rat and extracted themselves by resigning before the report was provided. My year 9 daughter would have questioned why this would need to change at the last minute. Obviously he knew that there would not be consensus so he took it upon himself to change the mandate. It would be very interesting to know how he was put up as the “professional” best suited by the role and by whom?
So, subsequent reports where Trowbridge has tried to defend the fact that his report is not replicating the FSC submission are almost laughable. When something is 90% there with the basic tenants of the goals remaining in tact you have the basis of the submission…… I liken it to the industry funds who preordained the FoFA legislation with the Labor party even though over 95% of post GFC issues were corporate failure or fraud. So Trowbridge needed to throw a couple of softeners to defend the indefensible. So what have the AFA done?…. they have come out with words such as “we disagree” and this is not our belief/report etc etc. All soft and totally weak. The AFA continually argue that they ‘are in there for the adviser’ but their results and more importantly actions demonstrate otherwise. Yet here we are in some cases being mandated to join either the irrelevant FPA (who are now a proxy organisation for the banks) or the weak AFA. If it wasn’t serious it would be laughable. But both of these organisations are gearing up for an influx of memberships all of which are being forced upon advisers. This is being done under the notion that we need to become a profession……… Ahhhh note to all, we are. It’s not an industry. I have a degree plus post grad studies…… many others do too. This was my desire more than legally needing too. So the discussion should be more about increasing progressively the education qualifications of new advisers while managing some changes that need to apply to the older experienced advisers who may not. The experience these folk bring to the table can in many cases exceed anything you will learn at Uni. So logic (which bureaucrats have a distinct shortage of) should prevail. However this whole sorry story has been hijacked by the Banks and their aligned insurance companies….. I’m in the process of trying to obtaining the submissions from all major insurers….. it will be interesting to see who will provide them. Those who made public submissions obviously would/should have no objection. Those that made private submissions? They are most likely the ones that provided the modelling that the all knowledgable Mr Trowbridge quotes….. This may be a bit synical but I’ll lay a wager that they would have the same views of the FSC too.
For the sake of the retail life insurance industry Mr Trowbridge, look at the responses from the specialist risk advisers – 87% have said that your model will NOT sustain a viable advice business!
We are the small business owners. Don’t you think we know what our costs are in running a business?
Are you listening?
May I challenge you – find 20 small risk only practices – and they must be risk only. Spend time with them. See how passionate they are about helping their clients get the best quality cover for the cheapest premium. See just how much time they spend working with the client guiding them through the process. See how much time they spend on compliance. See how much time is spent working with the insurance company on behalf of the client, dealing with underwriting, and so on.
Are you prepared to take up such a challenge?
Until you do, I cannot see how you are in any position to tell us how we are to be paid!
He will never take up the challenge. He, the FSC et al are all being funded by bank/insurers, the very people trying to destroy independent advisers. If you have a distribution channel you have a vested interest in level. This is a SHAM!
More than happy to offer my business (CCS Insurance Solutions) & time up for such a project!!! Will also walk through the amount of time & effort going through our 50 most recent claims & highlight the 100% claim acceptance rate for ur clients over the past 16 years. Better yet, would be prepared to offer up any of our top 500 clients (including referral sources & claimants) for phone or even face to face discussions to ensure a greater understanding of what quality advice & client satisfaction actually is in this industry….
Remuneration discussions disappear when the focus is on the client, how we are paid is irrelevant & the entire point is being missed, the FSC have an intended consequence of squashing small businesses to protect THEIR legacy & in time will use these so called savings (adviser costs) to ramp up direct insurance! Again, client loses as they do not understand what they are obtaining…..still 95% of the working population do not have any trauma cover, how can quality advice be given over the phone with a direct offering….
Has anyone tried turning down all the commission in an insurance quote? How much savings can the customer make if the adviser takes no commission at all?? It is bugger all! All profits to the insurer! Hey it is good to know that the insurers are the ones who has driven this all along.
Patrina,
Here’s a rough breakdown
50% of the premium goes to claims
30% adviser remuneration
10% admin
10% profit
A couple of points here.
I’d very much like to have this conversation stepped back just a little. When i review a clients insurances and can provide equivalent cover for a cheaper premium with a different provider, isn’t that my duty as an adviser to that client to recommend this. In the eyes of many, this is seen as churning. I see it as doing my job.
By taking away sales incentive for new business, providers pricing on existing business will not be reined in by competition and the consumer will pay more.
If product providers adjusted their sliding commission rates to effect premiums in a meaningful way, market forces would achieve the results Mr Trowbridge is aiming for
John well said and I agree with what you have written, however in my experience if at the same time you also have a conversation with the client about the ramifications of the 3 year non-disclosure rules, then the client is much less likely to give a rat’s about saving money and acquiring additional ancillary benefits that don’t mean a whole lot at claim time. Insurance companies want us to replace and realign policies because it resets the 3 year period (which incidentally was tightened in favour of the insurer from 29 June 2014, so replacing policies that date back pre 29 June means the new policy now has a more restrictive Non-disclosure clause in favour of the insurer) and it also gives the insurer the opportunity to reassess a risk. Clever by design are my thoughts.
Also, if you have a read of some old Trauma contracts for example, you’ll find the heart definitions very ordinary when it comes to the new “key hole” surgery but the cancer definitions are much less restrictive so I put it out there that you really need to be an oncologist or a cardio surgeon to say whether one definition is better than another. All that an adviser can rely on is the research companies and who knows what clip they are receiving behind closed doors.
John, I think your points are valid and I also think you would share the same sentiment about the fact that no one…not even Trowbridge has actually come out and attempted to define “Churning”. We all have an idea but I don’t think the ideas would be the same and hence why it is so hard for Life companies to strike off advisers…if there’s no definition of “Churning” and a life company strikes off an adviser, then wouldn’t that adviser have grounds to sue for restraint of trade or some other legal term like that?
What I don’t get is Mr Trowbridge has recommended a “more efficient SOA structure” but his recommendations have come about from ASIC’s Report 413 which found a large failure rate in Risk insurance files. I have also heard that a significant proportion of these failed files were written in a pre-FOFA environment but assessed using the post-FOFA regulations. If this is true, then it’s any wonder why the results were so poor. It would also be interesting to know if Trowbridges “more efficient SOA structure” (whatever that may be) were applied to the same files, whether the results would have been better and therefore avoiding the need for ASIC to commission Report 413 in the first place. What a wonderful world…ooohhhhh yeaaaah!
I want to reply on the following statement: “He said these projections indicated there would be an initial reduction in revenue of approximately 20 per cent to 25 per cent in the first year”.
Lets compare a financial planning business to any other business. Most small businesses will close down if they have to take a hit like that. Their running costs has not been reduced by 25% all of a sudden. Makes no business sense. I also wonder how did they arrive at those figures. Reduction in revenue will be much more.
My reply on the following statement: “Mr Trowbridge told riskinfo that any modelling should also be considered within the context of all six of his policy recommendations which he believes would lead to:
◾A reduction in the cost of delivering life insurance advice (eg more efficient SoA structures)
◾The prospect of reduced premiums for consumers
◾Greater innovation in a more ‘client-centric’ approach to life insurance product offers
Dear Mr Trowbridge; the risk industry has evolved a lot the past few years. Our SoA’s are already efficient. Just take note that you can not take short cuts. Compliance is very important.
The prospect of reduced premiums for consumers. Well there is a prospect of good rains this year as well. It still is just a vague chance/wish.
“greater innovation in a more client centric approach to life insurance products on offer.” The life insurers build the products not the planners Mr Trowbridge.
Next point: “However, he highlighted to riskinfo the importance of the three-year ‘hybrid’ transition phase included in his reform proposal.
Lets fast forward to 2018: What about new advisers that do not have recurring revenue, or minimal. You are financially preventing new advisers from entering the risk advice area. It just won’t make sense for a new planner to enter the risk arena. We have an ageing Risk Adviser population with new advisers reluctant to specialise in Risk Insurance.
Stop being concerned about what some planners earn. Nowhere are you indicating what the benefit to the client is. The insurers know who the churners are. The question in the client application; What current insurance does the client have? Is this to be replaced? Well the insurers know when it is replacement business. Ask for a SOA summary that indicate it is to the clients benefit. If it is; well then all good. If it is churning, chase the churner.
Our recommendations as well as yours should all be about “the clients best interest”. We have the clients best interest at heart.
If the Trowbridge recommendations are going to push risk advisers out of the business, the number of risk planners will decrease. We are heading towards a bigger underinsurance problem in Australia on the long run.
How are you going to reverse the underinsurance problem when you guys realise in 2018 what you have done to the industries work horses (the risk planners)?
I am staggered that anyone (Life Offices) needed to do modelling to determine the impact on adviser remuneration between Hybrid and Upfront commission.
To quote a well know TV add “genius”.
OK, if the Life Offices want us to accept 20% level and 20% ongoing (which I vehemently oppose) let the Life Offices “show the way” by immediately increasing ALL INFORCE RENEWAL COMMISSIONS to 20%.
Have a one year transition period for advisers with 5+ years in the Industry (Hybrid payments only for that 12 months) and a Hybrid remuneration on a scaled down basis for those with less than 5 years service in the Industry.
As they say NO PAIN NO GAIN, so come on Life Offices, you can wear some of the pain and not try to inflict ALL the pain on the advisers. It has always been the Life Offices that determine the basis of adviser remuneration, not advisers.
I think it is important in this debate to analyse the impact the proposed course of action will have on “new business” which after all is important to all of us as well as being (in part) an indicator of whether the “under insurance” problem is being addressed.
Let me give you the answer so that you don’t have to do any more modelling. New business will drop to 20 – 25% of current levels and the underinsurance problem will become worse.
Go back to the drawing board and get some common sense happening!
I’ve come to the conclusion that Trowbridge merely wanted to throw the cat amongst the pigeons to evoke change. So if hybrid later became an option due to the furore about level commissions, everyone would jump up in favour of it. Maybe he’s not as stupid as I thought he was, perhaps more devious than anything else.
Kelly, I’m of the same mind as you. Make such a drastic proposal that advisers will accept hybrid without a struggle.
I could then see them dialling hybrid to a 55/20 type model so that the alternative is always the spectre of level comms and businesses being closed down.
I agree with Don’s comments above. Trowbridge expressed the sentiment that there would be a business loss when procuring the business in the first instance. Well Hello!!!! Easy way to make a good business into a bad business. When all the changes started the reasoning was to make a “level playing field” with the vertically integrated models. Now how can anybody kick off in the profession other than being with a vertically integrated model? Please reconsider, I see the merits in part but your model needs work
Trowbrige Report – In whose Best Interest…….
Mr Trowbridge has stepped into the media in a big way this week to defend his report because it is flawed, unrealistic and not in the best interest of the industry or the consumer….. it is representative of only a small group (the Big Insurers and vertically integrated insurance businesses). Shame on you Mr Trowbridge.
In terms of the cash flow modelling, I’m at a loss as to why you would get the same insurers to model the cashflow implications of change to my business …. once again….. how can anyone really accept that the modelling is independence when it is done by a group who are driving the revenue reductions?
By the way I have asked a number of the insurers for their submissions to the LIAWG, without any success. Why won’t they release them??? The conspirator in me things….. maybe they will mirror the FSC submission!!!
And they say we have the ‘conflict’ issue!!!!
How does the flat commission and service fee stop churning?
If We are getting a service fee and only 20% commissions the churnets will be rewriting these policies every year for the service fee!!!!
What a bunch of dills!
B, the IAP will only be paid once every 5 years.
I love the definition of the language used “ameliorated” – “Volunteers were able to ameliorate conditions in the refugee camp” & that’s how I feel about these proposals, we are merely volunteers working on the basis things might get better!!!
There is a common thread amongst all of the comments. There are many very unhappy advisers as a consequence of the proposed changes outlined in the Trowbridge Report and rightly so. Whatever the changes end up being it is important to remember that the client’s best interests are paramount and alienating advisers is not the way to look after clients best interests.
If it wasn’t for the advisers, Life Offices wouldn’t have the business they have today!
This obviously hasnt been thought through very well or the IFA market havent appropriately conveyed its message. Mr Trowbridge’s recommendations are going to encourage and reward no review of existing business and not sourcing new business.
The only viable model under this structure will be trying to secure business already in place and it will not be financially viable to review it, it will be more profitable just to take it over and leave it how it is, no matter if the policy is poor or otherwise.
It wont be financially viable to source new business because the IAP wont recoup the set up costs.
To say overall revenue wont be affected because of higher ongoings is completely naive. We only take hybrid commission, so the new business fees get smashed because we only receive $1200 and we still receive exactly same amount ongoing.
Trowbridge’s assumptions and response to this incredibly damaging proposal is of the utmost concern.
It highlights a gross misunderstanding of the industry and a total disregard for the financial impact on small business and will decimate the ability of current quality life insurance advisers to deliver adequate levels of advice and in turn will do absolutely nothing to address the underinsurance problem.
The “elephant in the room” issue of churning of policies can be easily rectified.
Reasons have been put forward on this issue from experienced advisers and yet I don’t believe I have seen one single supportive response from insurers.
This label of the “massive problem of churn” is now being overstated constantly.
Firstly, any new risk business that has been previously underwritten and established within the last 5 years will qualify for either Hybrid or Level commission only. No upfront commission payable on these cases.
Secondly, a Charter of Understanding or Conduct agreed to and signed by all insurers to ensure
a commitment to adhering to the point above and reporting or compiling information on advisers
practices in regard to attempt to churn. These advisers to be placed on a level commission option only or refused the acceptance of applications.
Thirdly, standardise all commission rates across Upfront, Hybrid and Level commission options for every insurer to remove any remuneration bias in regard to various products.
Quality, compliant and ethical advisers SHOULD NOT BE PAYING A BUSINESS DESTOYING PRICE for a few that have utilised the system and the greed of the insurers to increase new business to their advantage.
Plain & simple….this is an intended consequence, orchestrated by the big end of town to purely protect legacy & in turn their very profitable in force book of business….This is a significant conflict of interest & karma will have its day!
What’s goes around comes around, so be careful what you wish for FSC….the most talented advisers (people) will survive & prosper, in either this industry or another. In the meantime, your profits will diminish due to lack of inflows, the inevitable natural attrition & redundancies you will no doubt have no option but to dish out to your teams & most likely yourselves…..so be careful of these unintended consequences-you might just be working for an adviser (or ex-adviser) one day
well said mate
Here! Here!
Kind of awkward reading this now given the whole EU that Jason is now under with ASIC due to questionable insurance advice…
Someone over at the FSC has been reading Machiavelli, and studying ” enquires 101 ”
The LIAWG was essentially a Royal Commission. Its like Abbots Union Royal Commission, which while it may identify dodgy union activities will also name the associated and compliant businesses. Terms of reference written by the FSC, and a con job on the adviser representatives to give them co-sponsorship badges. But the terms of reference can be changed mid stream by the FSC, who pulled the strings all along the “process ” .
Now we know there was some modelling by some insurers ( anyone who thinks that was done by the banks put your hand up ) on hybrid, but apparently on a ” I am not listening , la,la,la ,” basis because that did not fit the FSC power elites agenda. Don’t forget there are always “riding instructions ” to a published terms of reference.
Hello insurers, where is that modelling on hybrid ? Can I suggest that those who intend to ask their BDM for a copy of their employers submission, ask specifically to see the modelling
And the Trowbridge thought of “client centric ” acts of generosity ” by insurers boggles the mind. This is profit gouging city ! And what will the lawyers with their snouts in the compliance trough funded by scaredy cat dealers do now that SOAs are “simple ”
Finally, if an adviser chooses a NIL COMMISSION model and charges a fee for advice and implementation, the “best interests “doctrine dictates they should shop it each year, subject to demonstrating a saving to the client.
No trail, no clawback. Care factor for insurer – NIL
The FSC has gone to the debutante ball in nothing else but Abbotts budgie smugglers !
The impact on the client will be incredible.
– Premiums will not go down, they will increase. I can prove it, if commissions were the only issue in relation to premiums direct insurance would be cheaper and it isn’t. Premiums will increase because there will be less new business written and the insurers will need to take up the responsibilities advisers currently manage. Also watch the lapses coming thick and fast due to adviser leaving the industry and no one to replace them and service the clients.
– If you think streamlining SOA will help? We are all over that already, we have processes for our SOA’s. Even if the SOA is 1 page long I’ll still need to do all the investigation and research I currently do. Because guess what I’m already ‘client-centric’ in my approach. I’ve had 5 new client meetings in the last week and it’s more than likely 3 of them are un-insurable? Guess what I still need to do all the work to ensure I’m correct, in fact I’ll work my guts out to try to get them cover. How are you going to cover my cost or reduce my expenses for that? This just shows a complete lack of understanding of what we do.
– ‘client-centric’ I know I mentioned it above, again it is incredibly insulting to suggest we don’t have our clients best interest at heart. I can prove we do, if all we cared about is commission we’d only write AMP as they offer the greatest upfront commission. I know that in fact it is mainly the AMP aligned advisers who write AMP. Why because we are ‘client-centric’ and place our clients with the insurer that is best for them, not us.
If you are worried about ‘client-centric’ activity or lack of? Have a look at the people pulling your strings. If I meet a client who has got insurance through the bank I know who they are insured with before they tell me, NAB – MLC, CBA – CommInsure, ANZ – OnePath, Westpac – BT. I met with a new adviser and he said I’ve started working with a client who’s cover was set up through NAB and I started talking about MLC. He stopped me and said how did I know they were with MLC and I said you said NAB? Who else would they be with?
John is an actuary : Actuary deals with with the financial impact of risk and uncertainty. Actuaries also have good relationship with insurers.BUT
They don’t know how the business works : what profitability levels are to be maintained to be a good business.How much back office work is needed , how much marketing and promotions are needed , how much on going knowledge is needed and how much time you need to put in to give complaint advice.NO they have no idea.
To put simply what the FSC and the insures model as the only revenue model some one has to be insane.The reason is they work on the revenue on finished business profitability but does not know how much you need to sped for new business or business that advisers never write.
The scenario is Adviser meet 10 prospects and make 2 sales. Who pays to see the 8 who does not buy insurance or any service offered.
Insurance is not bought – Its sold .
For him to say simple SOA : surely out of sight and out of mind.Just read the ASIC’s Report 413 and see what an adviser need to consider in giving good advice – at least 3 days or work per client is needed to get a good SOA out with the 413 criteria.
Can the industry get some business entrepreneurs and insurers advisers and work on practical solution other than a good actuary telling how the business should run – specially when he is looking at the interest of FSC and insurance providers.
Here’s a few points from an old-timer with insurance management experience…
1. Re-insurers generally offer the first years’ cover for free – that is a big part of what helps pay for the adviser commission.
Take away the adviser commission and the insurer profit lifts massively.
2. It has been 22 years since the last recession in Australia. i was in insurance management during a recession, and the fixed costs were a killer. The most efficient distribution method by far was commissioned sales by external advisers. It’s a variable cost aligned to the company income and earnings. This is the “hidden” secret to Industry Funds success in super – they don’t have to pay for distribution as mandated SGC provide rock-solid inflows. Take away that mandate and the marketing/distribution costs skyrocket in a truly competitive marketplace.
Insurance management has forgotten some of the long-term lessons on market cycle profitability and cost management.
3. As mentioned in another comment – there will be unintended consequences to reducing adviser commission.
Many people will NOT pay for advice up front for insurance. Simple as that. Many people will NOT pay for reviews/reassessment of their cover. Advisers will have to charge for even the most basic of information services, meaning clients will go direct to customer service or call centres. i’ve run them in the past and they are incredibly costly and inefficient avenues to provide services – especially if a recessionary environment enters the scene.
4. Advisers have ALWAYS taken the cost of new business on their balance sheet. However, they have been able to look with some certainty at a future recoup of those costs through long-term contracts for income through commissions.
Take away that ability to recoup that loss and you simply have more loss. It beggars belief that knowledgeable commentators and academics and management could see it any other way.
5. Clients generally (!) have to be sold on the idea of insurance. That is a sales market. Operating that style of marketplace via fee for service is a mismatch that is crystal clear to anyone with any genuine knowledge of the insurance marketplace.
6. This overall insurance discussion is flawed in that there is an underlying assumption that all forms of commission are wrong. This is an ideological point of view that is not being challenged often or strongly enough.
There has rarely been a case of an industry being better because Government set the price for delivering services.
The idea of a fixed commission takes no account of acceptance or non-acceptance rates – where is the costing for rejected proposals or multiple applications because of loadings or exclusions?
Wealthy people with large premium outcomes will see direct fees as a benefit. This may or may not be true but i simply cannot see how smaller levels of cover will be able to be cost effectively advised upon. Will risk business go the way of investment business – where the unspoken rule is that clients will need around $400k of assets to make it worth the adviser’s while even talking to them?
Overall, this is an incredibly short-sighted and poorly worked out report.
I find it strange that a Liberal government would come out in support of anything that has a mandated price-fixing regime. Simply weird.
Has Mr Trowbridge ever run a small business or has he always been an employee receiving a pay cheque and never has had to put his home up as security for the business overdraft? Whilst I agree small businesses do spend more money obtaining new busiiness , they try to make sure they are still charging sufficient to cover all their overheads and then have a small profit for themselves. With what Mr Trowbridge is proposing I would suggest there wouldn’t be sufficient to cover the overheads in most cases.
Plus if the “kindly”insurers reduce their premiums the proposed 20% would be calculated on a smaller amount which would make it even harder for the adviser to cover his/her overheads.
I am still waiting for insurers to specify what they class as a lapse . Does it include income protection and trauma policies which can no longer be renewed because the clients have reached the specified expiry age? Does it include policies replaced with the same insurer because policies have been updated with a new series which have better conditions and definitions? Does it also include life and tpd claims?
I’ve asked one of major insurers to let me know what percentage of my business with them consist of policies up to 5 years, 5-10 and 10 years plus. I know I have a number of policies more than 15 years so the company would be making a nice profit on them.
As many commentators have said, the companies know which advisers consistently churn policies so why don’t they refuse to allow these advisers to receive upfront commission?
Finally if Mr Trowbridge is comparing Life commissions with General Insurance commissions he should look at the SOAs required for each as the latter could virually fit on a serviette based on the one given to me in February by my GI broker when he changed my household contents to a new insurer.
Hi Tony,
I’ve asked a BDM from one of the big 4 owned insurers and he provided the following clarification:
– policy expiry does not equal a lapse
– replacements from legacy products to the current series of product aren’t counted as a lapse
– claims do not count as a lapse
I don’t know why we all bother to express our concerns and interests as the Banks and Insurers have already made their mind up long before commissioning Throwbridge to back them up. Not to mention the Australian governments attack on small businesses (in all sectors) over the last so many years, it’s clear who is running the show in this country and it’s not the white knight Tony Abbott and his cronies.
Australians are not stupid, my clients trust me, definitely not the banks or insurance companies, if the risk companies take me out of the equation less Australians will have cover meaning less revenue coming in to the Insurers and more Australian families in a worse position.
good luck to them, I’ll be happier in another industry am already applying as I know 30 days notice is all people give you in this industry before taking your livelihood, the discussion has been over, they are making these changes to boost their revenues and have no care for who it takes down.
I hate to see the day where IFA’s are pushed out of the market so Australians have only the option of direct insurance over the phone or walking into a bank planner to receive advice on one insurance product only. the old saying if you can’t beat them join them will apply, but this may be another ulterior motive for the banks as they struggle to retain good planners.
Also being forced to join either the AFA or FPA which neither of them have backed up what I do and how I do it so why would I want to back them up, I thought Australia had laws against forced union memberships, but I guess not. So much for being an IFA, there won’t be any real independent advisers left after all this which I feel to be detrimental to the consumers or Australia.
P.S @Throwbridge, I like “Prospect of reduced premiums for Consumers”………..
Do you make that up yourself or did they write it for you?
If you like I can provide you the odds on that happening?
Regards,
While eating my lunch, I’ve taken time to scan all of the above responses, the unfortunate thing is that in all probability the only people who will read the above comments are advisers who have similar attitudes where’s the responses from the Banks or the Insurers owned by the banks or the Dealer groups owned by the insurers. Stop writing items here contact your local Member of parliament or the Finance Minister or Write to the National Sales manager of the insurers you have good relationships with. Write to people who will be involved in the decision making process, not other advisers who agree with you.
Well said Garry. Advisers are too fragmented, if nothing is said this industry is doomed, everyone needs to grow a pair and fast!!!!!!!!!!!!
So he has confirmed that he did not modelling on the $1,200 and 20% but if he did do the modelling, it would be based on a number of suppositions. Pathetic. I don’t know why we continue to give him oxygen. We have heard enough.
So, which insurers contributed to the modelling? And when are the models being released? How many Advisers contributed to the models and what do these models look like? Can’t wait for these.
Why the hell would he ask the insurers about the effect on the advisers income? Every time I read something new about this report, I come away with more questions than answers.
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