The Australian insurance industry has “weeks, not months” to address the recommendations made in the Trowbridge Report, the Assistant Treasurer has warned.
Speaking at a Financial Services Council (FSC) event in Sydney last week, Josh Frydenberg told attendees that the industry needed to act quickly to outline its agreed position, or the Government would be forced to step in.
“Appropriate reform, made as soon as possible, must be led by the industry itself. Industry should not force the heavy hand of Government to act,” Mr Frydenberg said.
“I’m not saying many months – they [the industry] don’t have months – I’m saying weeks and maybe at most a couple of months.”
Mr Frydenberg said reforms needed to address the following key issues:
- Australia’s underinsurance dilemma
- Eradicating churn
- Ensuring competition remains
He said the Trowbridge recommendations around commission structures, approved product lists, culture, behaviours and advice practices, and a life insurance code of practice were all deserving of consideration, but the extent to which the Government intervenes will ultimately depend on the industry’s own actions.
“The Government will be a willing reform partner with the industry provided the industry is prepared to adopt genuine solutions to the issues identified in ASIC’s report.”
He added he was “quite sensitive” to the issues arising from reduced upfront remuneration and, in particular, the impact on independent advice businesses.
“That is a tension we have to understand,” he said.
First bit of sanity I’ve seen so far, but then we (advisers) are fortunate that we have a small business support government rather than a union support government.
Can the FSC see sense and make the right move now?
The simplest solution is to remove all commissions on insurances reducing premiums by up to 30%, then charging clients a flat fee based on hourly work in the establishment of their insurances and engage an annual review service cost. But then the primary objective of the inquiry would be failed in that the rate of insurance of Australians would plummet to levels never seen before and the social security system would need to pick up the pieces. Doesn’t sound like a win to me….good luck with this….
you wont save 30% on premiums, you forget the real agenda here is increased profit, not cheaper premiums
Too right!
In any case this whole issue and its put-forward proposals won’t prevent many older advisers exiting the industry. There is much uncertainty and the monumental shift it will take to remodel advice businesses is likely more than some advisers will care to make.
Advisers on a fee-for-service system will do well – extremely well – but most of those will be financial planners, therefore what Mr Frydenberg referred to as a key issue – underinsurance – will only worsen.
Financial planners won’t have the time or willingness to service the lower end of the market that’s why this issue won’t be resolved. Interesting times ahead.
I personally don’t have an issue with the reducing the up front however it should not be as simple as 20% plus $1,200 . I beleive this figure is way to low especially for the lower cost polices . There probably should be a cape at the higher premium cost end say $10k -$15k or higher premiums .
The upfront on these combined total premium levels should not exceed a hybrid or reduced hybrid commission of say 55% plus $1,200 for annual combined premiums below $5k.
I am concerned that the insurance companies are very silent on this issue . I stand to be corrected but I have not seen any reply from any insurance company supporting us.
The issue of Churning is always going to be a difficult one , as advisors we need to act in then best interest of the client . Therefore if in year 1 client A has product A , the advisor does the annual review and discovers that the client either needs more or less life insurances as their circumstances have changed, don’t we have a legal and morel obligation to source the market place to make sure that the current product A is still the best product on definition and cost, and if it isn’t don’t we have an obligation to recommend a change?
Furthermore I n our SOA recommendations don’t we have to justify the reasons for the change first to our client and secondly when we get our files audited by our dealership auditor or for that matter ASIC if they audit our files.
I don’t churn business and have found through experience that most clients circumstance that warrant an adjustment in life insurances ( major or minor ) can be every 2-3 years, and even then if there has been a need to adjust the exisiting cover it has generally been with the current provider.
My business does not run on an upfront commission model and has not since 2003. We have being operating a hybrid model since 2003 and that has worked well for us as our aim has always been to retain life insurances and only change them if there is genuine need and benefit to the client.
I think the commission model moving forward to should be the hybrid model at least for the next 5 years and then move to the current level commission model but a slightly higher up front of another 5-10% and a slightly reduced ongoing by about 5% -7% .
I’ll preface my comment by confirming that we have used the hybrid model for years now, as it allows you the paid time to review the client – as one should!
Insurers have stuffed around with this commission dilemma for years now. Its no wonder they’re putting the government in the position of having to intervene.
How about some leadership from other insurers, not only Clearview on a reply to this half cocked attempt by Trowbridge that won’t work in practice, and which will ensure experienced risk advisers will leave the industry.
How about Insurers collectively ban upfronts from 1/1/2016 and move to hybrid as is, as an interim, AND if its found that hybrid isn’t working following a couple of years of the revised system, review further then.
How about Insurers stop tweaking the policy terms to generate reason for movement of policies.
How about the insurers knock out the known churners and stop accepting their policies on the way in and cry when they move to the next insurer.
How about Insurers stand up for their supply chain that delivers good long term clients/business and just do something worthwhile in this space as a group!
How hard can it be to convene a meeting and make a collective decision.
Stop sitting on your hands!
I like you Risky at Heart…I wonder I you have also heard that the life companies actuaries rely on Up Fronts to manage the pool. They want (no hang on) need policies to be “realigned” (I won’t use churn because no one has defined the term) every every 5-7 years otherwise they’ll be paying out too many claims. You’ll really have to wonder about the Life coys motivation.
Bah humbug on the hand wringing on under insurance
Treasury should be asked to remove the 22% tax on lump sum TPD in super
That means when a courier made a para in a prang gets his full default $400,000 ( he was never told he needed more , or anything re the tax ) he gets the $400,000 , not $312,000
Might keep them from CenterLink for a few years
My problem is I have a sneaky suspicion, in our current drive to put risk in super, that advisers, just like the ISN funds, are somehow overlooking that tax in discussions with clients.
What is wrong with Frydenberg? Weeks not months? He rushes to “solve” a problem before it has been defined. Who has been found guilty of doing anything wrong? What did they do wrong? So far it is hearsay. What is his secret agenda?
If only every adviser had their own lobbyists in Canberra!
The Trowbridge report makes interesting reading. and a couple of observations can be gained from it.
1.If implemented some big dealer groups will fold like ….. Financial Planning whose franchise business model would be unsustainable and many other advisers and dealer groups who have focussed on risk since the GFC will also become unviable. Advisers are business people as well, they move onto other more profitable ventures.
2.The life insurance industry is licking its lips in anticipation of higher margins but it better be careful what it wishes for. If you cut commission and advisers leave the business or focus on more viable opportunities, where is the life premium supporting your statutory funds going to come from, ARE you listening AMP!!.
3. Costs will rise for investors, mums and dads who want insurance.
4. Insurance companies may elect to leave Australia or just focus on the more lucrative products.
Pleasing to see Frydenberg note the need to “Ensure competition remains” and that he is “quite sensitive” to the issues arising from reduced upfront remuneration and, in particular, the impact on independent advice businesses – “That is a tension we have to understand,” .
When addressing an FSC event this could be taken as messaging that he is aware of the FSC Cartel’s real motives behind their proposed remuneration structure and suggesting he finds it unacceptable.
IFA’S need to contact Frydenberg and provide a ‘from the trenches view’ so he is getting the full picture! I understand he has been making an effort to get out and hear alternate views.
Josh Frydenberg has stated the key issues the industry needs to address are:
1) Australia’s under insurance dilemma
2) Eradicating churn
3) Ensuring competition remains
He also stated he is quite sensitive to the issues arising from reduced upfront remuneration and in particular the impact on independent advice Businesses?
That is the best statement I have heard in years. It appears that while the FSC has focused on commission as the ultimate evil which is responsible for the life industries woes, the Government seems to have a differing view point.
Looking at the 3 points:
1) Underinsurance – Reducing commissions to levels where every professional insurance sale is a loss to the life advisers Business, is not going to help under insurance, it is going to accelerate it.
2) Churn – Every Life company knows who the churners are, so that is a quick fix. Limit the churner’s ability to churn and let the vast majority of advisers who do the right thing, to be able to write more insurance and enable them to be able to pay their bills and make a profit.
3) Ensure competition remains – Make it a level playing field by doing the following:
a) Have all retail life companies pay the same commission and have it based on the full premium, not the convoluted mess it is now with exclusions on policy fees, modal loadings etc. which makes it complicated to track. It should be made easy.
b) Force the direct product floggers to accept responsibility for their actions and if a potential client has existing cover, then do what we have to do and that is compare benefits and definitions.
Thousands of quality retail life policies are cancelled every week because of the lies and subterfuge the over the phone product floggers do to get the sale, like offer a short benefit period, long waiting period to beat a to age 65 or 70 benefit period with a 30 day waiting period policy.
Then when the client goes to claim, all hell breaks loose, causing 100% pain with nil gain for anyone except the product flogger’s bottom line, who take no responsibility while pocketing the money.
Maybe we should let the Government get involved if the 3 points mentioned is their focus.
The alternative is losing our Businesses and our livelihoods.
Great comments Jeremy.
Forcing the online product floggers to compete on a level playing field will have them shaking in their boots!
It is comforting that the Assistant Treasurer makes no reference to commissions being the cause of problems, which suggests that he understands commissions are not, and never were the problem!
The fact that he was “quite sensitive” to the issues arising from reduced upfront remuneration and, in particular, the impact on independent advice businesses and “That is a tension we have to understand,” shows he is well on the right track.
It now seems that both the AFA and FPA oppose Trowbridge’s suggestions. So here’s a thought – why don’t the FPA and AFA get a group of established Risk Only advisers together – and they must be risk only – and have them work through the concerns and present a solution that would benefit everyone? Who else knows what is happening in the real world than those who actually live in it?
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