- No (54%)
- Yes (31%)
- Not sure (15%)
We’re continuing with our latest poll for another week due to the significant level of debate in which our adviser audience is engaging.
Take this link to view the exchanges that have been taking place on this critical question: Jury Still Out on Future for Risk Advice Specialists (scroll to the end of the article…).
Our poll was initially based on comments made by specialist risk adviser and consultant, Chris Unwin, in which he outlined the posiibility of a three-step process he believes can be implemented under which advisers could charge a fee for risk advice (see: Three Step Process to Charging Fees for Risk Advice).
Common points being made by current and former advisers who have been engaged in this debate include:
- There is no way an average risk business can survive on the 60/20 remuneration model
- Mums and dads will not pay a fee for life insurance advice, although SME and other business clients may be prepared to do so
- The apathetic nature of the Australian consumer towards life insurance is not conducive to their paying a fee for life insurance advice
- Consumers would not be prepared to pay a fee for life insurance advice if their insurance application is declined
- Many experienced risk-focussed advisers will drastically reduce or cease writing new business because it makes no commercial sense. Instead they will ‘sit’ on their renewal commission income and reduce overheads.
- A hybrid model with a one-year claw-back might work, as might a two-year clawback on an upfront model. But the intended two-year clawback on a 60/20 hybrid model will not be commercially viable. “You cannot write new business at a loss.”
We welcome your further comments or observastions, especially if you have yet to add your voice to the conversation, as our poll remains open for one more week…
A risk business can survive with a 60/20 remuneration split, provided it is an established business with good cash-flow. A new business or risk adviser starting from scratch however would find it very difficult.
I agree with you Tom. Having structured my business on the hybrid rates since 1995, I now have a Practice with strong cash-flows that enables me to focus as heavily on providing great service to current clients, especially those on claim and not be totally reliant on new business. But sadly, it does make it extremely difficult for a person starting from scratch which means a new generation of passionate and focused risk advisers may not eventuate, which will be even sadder for the populace.
It’s the 2 year claw back that’s the “killer” not just when people change because someone says put it in your Super let the fund pay for it ! Sounds good at the time until the premiums outway the returns and things start going back wards It’s Also the business clients who’s circumstances suddenly change after 18 months and the Key man of Buy sell agreement is no longer required so there hoes the cover as well
There are dozens of reasons why a cancellation can occur. At the moment it seems to be the expense. Mums and Dads in particular are struggling with the recent 10-20% increases and we have no assurity that they won’t increase again and soon
People are “bailing” out of heath cover for the same reasons it’s become too expensive for the family budget ( right or wrong) that’s the ugly truth
Try selling that argument to the insurer and ask for a fair deal ? Not likely !!
This is a very good summary by Riskinfo but unfortunately at the moment will fall on death ears. The CEO’s don’t understand the future cliff this industry is about to fall off. Even the BDM’s seem to have no understanding of how they will also be effected.
Here is my prediction for the future and the consequences of the LIF.
1. Risk specialists will be forced to reduce or stop writing new business all together.
2. Planners will continue to write new business as part of their overall customer planning objectives. However this will only be in the high net worth space. High net worth customers in this space will expect regular reviews for their fees and business will therefore be moved between companies under best interest rules. Big cases, high costs for the insurers and higher lapse rates than they currently get from risk specialists in the mum and dad space.
3. Insurers will start heavily competing in the direct space (even worse than now). It will all be about price and incentives for customers to buy insurance directly and will get out of control. Free vouchers, free short term premiums, free TV’s!
To drive this insurers will have to reduce pricing by dumbing down products, easy acceptance, high exclusions. The result will be customers buying on price and incentives but higher claims being denied. The insurers lapse rates in the direct space will get even worse than now because customers will be switching between direct products based on price and incentives without any understanding of the consequences. Forget 40% lapse rates in the direct space, it will more likely be 50-70%+ lapse rates in the future.
4. No win, no fee lawyers will have a field day in the direct space in the coming years. “You declined a claim on a pre-existing exclusion, but didn’t ask the health questions or properly explain the product to the customers” – “Lets just settle out of court for a nominal amount to avoid court costs”.
5. Insurers trying to compete in the direct space will see their acquisition costs become out of control and prices on existing books will have to increase.
The FSC and Insurers may think they have a short term win, but in the long run nobody is going to be a winner. Least of all the customer.
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