The Assistant Treasurer has cast some doubt on whether the existing level commission model would be retained under the new Life Insurance Framework.
Speaking to riskinfo at the Financial Services Council (FSC) Annual Conference, Josh Frydenberg said there was ‘flexibility’ around the existing level commission model utilised by the life insurance advice sector.
“The issue that we’ve been trying to deal with is churn,” Mr Frydenberg said. “We set some pretty strong rules about upfront and trailing commissions and we’ve made it very clear from the statement we released earlier this year that [with] fee for service and level commissions there should be some flexibility around that.”
When pressed about whether the existing level commission model would stay the same, Mr Frydenberg reiterated that there was flexibility in the reforms proposed. “I think the agreement speaks for itself,” he concluded (click here to read the original LIF release, which includes the statement: ‘This proposal is not intended to limit the industry’s current ability to operate on a level commission or fee-for-service basis’).
The issue that we’ve been trying to deal with is churn
Mr Frydenberg also addressed the life insurance reforms as part of his speech to the FSC Conference delegates, noting the importance of life insurance in the Australian community.
“Underinsurance not only leaves Australian families exposed to economic risk, but it also places significant pressure on government and taxpayers.”
The Assistant Treasurer said he had been very pleased with how the industry had worked together to develop what he described as “genuine solutions” to the issues exposed by the Australian Securities and Investments Commission review of life insurance advice.
“As with all compromises, neither side got everything they wanted, but by coming to the table, each side was able to obtain a better outcome for their members than they would have in isolation.”
Mr Frydenberg said the Government was now considering the industry’s proposals as part of its response to the Financial System Inquiry, and that more would be revealed in the coming weeks.
“Of course, implementing the proposals will require ongoing cooperation,” he said. “Industry, along with the Government, continues to flesh-out the detail of this package and while there is considerable detail to be finalised, the Government will not lose sight of the end objective; better outcomes for consumers.
As with all compromises, neither side got everything they wanted
“This objective includes an expectation that where substantial savings are generated from the reforms, these would be passed-on to the consumer. We are currently exploring additional mechanisms to support this principle.”
In closing this section of his address, Mr Frydenberg acknowledged the challenges posed by the reforms. “If there is a message I can provide the life insurers in this room, it is that advisers are looking to you to help them transition and navigate these significant reforms,” he told attendees.
“Making sure all parts of the industry thrive as a result of these reforms should be seen as a shared goal and given the level of underinsurance in Australia; Australians need the industry to come together to improve the quality of advice and to ensure it remains accessible to those that need it most.”
Josh, If the issue you are trying to address with these measures is CHURN, than surely there is an agreed upon definition for CHURN? I am yet to see one, but surely the Govt would not support any definition of churn that did not reference the Best Interests Duty – or is the Govt stance in support of penalising advisers for meeting their statutory obligations? If it is CHURN that you are targeting, why is there no reference to replacement business being involved instead of just a lapse? Why penalise the original adviser if someone else convinces the client to CHURN (Again, why would it be considered CHURN if in the clients Best Interests..) As it stands it looks like a win for the Insto’s, a lose for the Advisers and most importantly a lose for the Client.
I totally agree. WE need an agreed definition for Churn…….now. Not in Feb 2016. With this legalised definition (This means that we don’t have 50 different definitions of Churn) we can proceed to work on policy inside our Business plans.
#Josh Frydenberg
Josh, take a look at the polls. More advisers will now charge customer fees than ever before. A third of advisers will exit the industry due to the 3 year clawback and insurance companies won’t be reducing premiums.
Can you please explain how you believe clients being charged more to access independent insurance advice (vs. banks selling their own products) and having less choice of independent advisers will benefit customers and reduce underinsurance?
Could it not be more obvious that this has been instigated simply reduce competition for the banks and increase their profits?
Has a single insurance company CEO stated yet that they foresee a reduction in premiums? The answer of course in no because premiums are more likely to increase with less competition and less new business being written in the future.
Can you also explain how you believe there is any incentive for independent advisers to continue to provide independent insurance advice under a clawback regime that will actually see them lose money where clients cancel due to affordability, losing jobs, claiming to name but a few reasons?
Josh, I will put this very simply so that you can understand for a change …………..
YOU SIR, ARE AN IDIOT.
Josh needs a reality check! I really never thought it would be a conservative government that would be the hatchet men for the greed of the banks and insurance companies – the arrogance is disgraceful.
Enjoy the moment boys as in 3 years time when inflows fail it will be the same group who will be knocking at adviser doors with chocolates and flowers looking to get you back in bed!
Josh you seem to have been mislead, what you are doing will destroying the FS Insurance industry, first of all how can you justify a 50% loss of income to advisers? new business that is for my business that’s 2 jobs lost. The savings will not be handed down to consumers it will go into the coffers of the companies, In the UK they did this to all retail sales it destroyed the life insurance adviser, the repercussions were devastating. This will only take independent advisers out of the industry leaving any business to the banks and insurers direct. CHURINING as you put it, is not an industry problem its a problem in the head of The ASIC, If it is a problem then dealer groups and insurance companies alike deal with it. The industry has seen many advisers have proper authorities revoked, and Insurers refusing to deal with them once recognised. What you ought to do is simple, if what you are trying to do is eliminate benefit and definition losses then put the onus on the insurance company, if you replace existing business then you take on the definitions and benefits the insured losses from the transaction. This entire Chruning thing was designed by stake holders to benefit stake holders, as if the FS Industry has not had enough to deal with. Please look at this from all angles it is not sustainable nor is it welcome, if your intent on changing the commission to 60% then renewal including existing business ought to be 30%. interesting its the self employed that get kicked in the face. What’s next is executive bonuses a conflict of interest? Ive already had clients tell me thanks but no thanks I can deal with the insurers direct and not have to pay a fee for service just yesterday.
The big winners, in the proposed, will be the Banks and financial institutions that have a captive audience, or regular customers. The losers will be the smaller niche Life Insurance companies, that make the market competitive, and in turn, the customers who will be paying more for the product, under which they are insured.
If the government is trying to look after the ‘little person’, why don’t they reduce the amount of paperwork that a client needs to get, in the advice process, maybe, even reduce it to the extent, that the prospective client might actually read some of it.
I’ll probably fall out of favor here but something has to give, in regards to ‘adviser/planner fees’ on investment products. I can’t see how any adviser can be charging 1% plus (ongoing), when they are just investing a client in managed products. If the regulators were going to ‘cap’ earnings/commissions/fees, of any financial services adviser, I think this is where they should be looking.
Josh reiterated at the FSC annual conference that the issue they are trying to deal
with, is churn.
To deal with it, you first need to understand what churn is and understand the data you
used to determine this.
Then you need to correlate what percentage of policies lapsing, were from churn, or
direct client action, or the dozens of reasons that have nothing to do with the adviser who originally wrote the business.
We still have had no evidence provided, that churn is the reason for the retail Life
Industry woes and before the Government or Life Companies jump head long into a
decision that will be used against them at a later date, it may be time for the Life Companies to start telling the Government and all of us, how they based their evidence or assumptions and if they do not have the imperial evidence, then at least have the courtesy to acknowledge their mistake and start doing evidence based research that will uncover the real reasons of policies lapsing.
Once the correct data has been analysed, then we can all come up with a solution that
will, as Josh keeps stating, “will provide better outcomes for consumers”
The last line is sadly flawed. We have already been forced to screen out many of “those that need it most.” Compliance in over-steer has pushed the cost of giving advice to a point where many mum and dads cannot afford it. Their remaining choices are to go online and pay a higher premium because of no underwriting or to go to the banks. The very place that is dominated by sales/product targets. For all of the rhetoric from banks about cleaning up their act I am still yet to see or hear of advisor targets for servicing clients. The culture is very hard to change. Why would they change when it has worked for them, despite the client being left behind in many cases. The lack of understanding from Josh and friends here is disappointing to say the least.
What a disgrace! Josh Fydenberg seems completely out of touch with the industry and the effects these changes make. The consumer is no better off and its clear that there will be no reduction in premiums. Frydenberg is clearly working for the institutions and he should hang his head in shame.
Remuneration aside the biggest challenge we will be faced with is reducing the compliance and administration burden that stifles risk businesses. Given the level playing field (in commission terms) insurance companies will have to step up to the plate and deliver. If they fail to do so then they will struggle for business.
It is the Insurers with the best underwriting, best administration and Licensees with practical compliance regime will survive and prosper.
Incidentally, can anyone explain how certain Insurers can provide up to a 30% premium reduction on Income Protection cover if it is combined with capital benefit cover and funded via the Insurers platform?? (I’m thinking of the major institutions)…… Seems cross subsidy is alive and well irrespective of the fact that Income protection portfolios are burning. I wonder if Mr. Frydenburg is aware……? Industry cries poor due to adverse claims experience and lapse rates yet continues to heavily subsidize poorly performing portfolios via platform.
I have sent to my local MP and to Tony Abbott that I recommend Throwbridge to head the inquiry to review politicians remuneration! I also made sure they know I am a small Risk only Adviser.
LNP have made many enemies now, good luck at the next election Tony Abbott and Joe Hockey with people like frysenberger running the show for you! Truth will prevail. The banks now posting their massive Billions increased profits while pressuring the Government to legislate on us small Risk Only Advisers remuneration. The politicians are crook and clearly hold the Australian people with contempt as they spend the tax payers money living the high life, while the rest tighten their belts!
I wonder what the remuneration to the Politicians was for getting rid of small Risk only practices within Australia. No doubt in time we will have this information at hand.
P.S I might even become a Gay Marriage supporter just to spite this corrupt Tony Abbott, Joe hockey and privileged friends show………. Abbott must be so popular he can do away with our votes and advocacy heading to the next election.
Why is it that the insurance companies have no stats other than their lapses. To gather stats all they need to do is ask a simple question, WHY, when a policy is to be replaced. They all ask if a policy is to be replaced when an application is lodged.
How can a proper decision be made when there is no data on the issue of lapses and the reasons.
The FSC has won a great result for themselves without having offered anything that will benefit the client. It seems to be all about their bottom line.
Reducing our commissions will not benefit the client. I will decline to write business on small premium clients from 2016 if these new rules are not modified. The 3 year claw back will not benefit the client but simply penalise the adviser if a policy lapses or needs to be rewritten for whatever the reason.
These politicians vote on matters that they have no understanding of. It’s a sad and sorry state of affairs
It’s all well and good telling others on here the way that it “should be” but really we need to put the heat onto our local governments and communicate with them. They serve the people at the end of the day (which includes you).
I am relatively new to the Risk only space and I am cautious about whether the industry is even worth continuing as a career because of these changes. Given all of the responsibility and liability that we take on, we need to be compensated for this duty. Being responsible for the personal financial affairs of our clients is not to be taken lightly and if we are not remunerated adequately then it may not be worth the risk as a career.
why are only advisers being targeted in all of this? as part of the “proposed” framework why don’t they ban insurance companies re-pricing existing policies? in the last 3 yrs AIA have increased twice, TAL once, Onepath have increased stepped and level premiums by a further 10% and AMP have repriced/increased policies on 1/7/15 ( ie midway through a policy not even waiting until anniversary dates. If insurance companies didn’t reprice and there was some certainty around prices then churn and commission rates wouldn’t be an issue. Is there a guarantee that if commissions are reduced premiums will be reduced? or will be another profit making exercise for insurance companies?
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