- Black-list serial churners (16%)
- Create better policy retention initiatives (16%)
- Simplify policy upgrade processes (12%)
- Restrict serial churners to level commission only (12%)
- Punish licensees who house serial churners (12%)
- Make level premium offers more attractive (11%)
- Offer hybrid or level commission only (10%)
- Remove upfront commissions (6%)
- Retain upfront commissions, but extend the clawback periods (3%)
- Offer level commission only (2%)
The message to insurers from advisers is that the answer to the sustainability issue lies in improved systems and greater flexibility, rather than in restricting remuneration options.
Responding to our latest poll, in which we ask advisers to rank their top five solutions to the industry sustainability question, the most popular responses all relate to process, flexibility, innovation and targeted activity, rather than options related to remuneration changes.
Whereas the message from life companies, via the Financial Services Council, focusses on addressing remuneration as a key component in solving industry sustainability (see: Renewed Pressure on Risk Commissions), the response from advisers is effectively asking insurers to share the pain.
As we go to print, the five initiatives proving most popular amongst advisers are:
- Create better policy retention initiatives (65%)
- Black-list serial churners (59%)
- Simplify policy upgrade processes (51%)
- Make level premium offers more attractive (49%)
- Restrict serial churners to level commission only (48%)
Cynics may assess both the adviser and institutional approaches as self-serving – that is, it is in the best interests of advisers to find sustainability solutions other than those that impact their remuneration levels and structures, while the reverse applies, where life companies seek to deflect responsibility for ongoing sustainability to the hip pockets of advisers.
Perhaps the answer lies somewhere in between these seemingly divergent approaches.
The most popular solution to address sustainability from the adviser point of view is to focus on better policy retention initiatives. This would be a universally-shared outcome, as long as the cost of successfully implementing the initiative did not outweigh its benefits. Experienced adviser and industry contributor, Jeremy Wright, made the following observation in relation to policy upgrades and retention:
It needs to be simplified, so clients and advisers are not scared off by doing something as basic as a policy increase
Policy Upgrades:
It needs to be simplified, so clients and advisers are not scared off by doing something as basic as a policy increase. The real value to a Life Company is not the $200 premium increase, it is the premiums that have been paid for years on the current policy.
Policy Retention:
Retention means making it easy for a client and an adviser to help keep the policy on the books.
Banning serial churners continues to be a popular solution put forward by advisers, and we ask why (other than for potential restraint of trade legal arguments) life companies have not made a more serious/intense effort in this area.
This debate requires substantial and serious input from all sectors of the life insurance community and we ask advisers and all other industry contributors to make their voice heard on this issue…
Interesting survey! It strikes me that replacement within a short time frame 2-5 years in contributing to the sustainability issue. It’s interesting to note how Insurers account for their acquisition costs, see below:
Deferred Acquisition Costs (DAC) is a term commonly used in the insurance business. It describes the practice of deferring the cost of acquiring a new customer over the duration of the insurance contract. Insurance companies face large upfront costs incurred in issuing new business, such as commissions to sales agents, underwriting, bonus interest and other acquisition expenses.
I think its fair to accept that business is not staying on the books for 7 years +, in fact RGA Australia have said that the last 2 years have see the biggest lapse rates in a decade!
For my money a move toward a Hybrid model is the best option providing longer term sustainability, building business equity values. Apply a 3 year claw back on upfront, it will shift the market to hybrid which in the longer term has to be a good thing.
I think we still need to address the real reasons why policies lapse. It is premature and not in the interest of anyone to make radical changes to how the life industry will operate in the future, if we have not learnt from the past.
Actuaries know that accurate data, leads to correct analysis and pricing models. However, a downside to using statistical and historical data, is it is doomed to failure if that information is out of sync with current trends and real life situations.
I believe that there is a hard way, an easy way and the correct way to do things.
A trait that is common with all human beings, is that if they have to deal with issues and their choices to deal with it are hard, easy or correct, inevitably most people will choose the easy option.
A real life situation and research has backed this up, when people were asked why they cancelled their life Insurance policies, a huge percentage said, it was becuase their electricity and other bills had risen and something had to give, which unfortunately meant their life policies.
This was the easy option.
The hard option would have been to reduce their non essential spending.
The correct option should have been to do a full review of their financial position, itemise and prioritise what is important and even though we advisers know life Insurance products are crucial and should fall into their mandatory expenses just like electricity, food etc, unfortunately clients are not sufficently interested or educated by our industry to reinforce why they should keep and not cancel their policies.
The Life Insurance industry has historically focused on being proactive in bringing in New Business and been reactive to the most important aspect of the Business which is retention.
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