- No (60%)
- Yes (34%)
- Not sure (6%)
Our latest poll is asking advisers what they think about the prospect of banning upfront commissions on replacement life insurance business.
While this proposition has been discussed in recent years as part of the debate on churning, we note in last weeks’ release by ASIC of its Review of Retail Life Insurance Advice that the regulator draws a direct correlation between high lapse rates and upfront commission models (see also: ASIC Life Insurance Advice Review…).
The report makes recommendations to insurers, licensees and advisers about how each sector can position itself to reduce lapse rates and minimise poor life insurance advice in order to address what it concluded was an ‘unacceptable level of failure’ in delivering appropriate life insurance advice.
While ASIC recommends the industry ‘review remuneration arrangements’, it stops short of specifically calling for the removal of upfront commissions on replacement business or any other specific initiatives regarding the future structuring of commissions. Rather, the regulator has left it to the industry to make its own conclusions as to how it might address commission-based remuneration in order to achieve these goals.
We’d like to know your views about this particular issue. Is there room to discuss the possibility of removing upfront commission from the replacement insurance space? Would it make any difference in reducing the incidence of inappropriate life insurance advice, as outlined by ASIC?
Some advisers have previously told us there is often more work and effort involved in facilitating replacement business than there is in writing a new business policy from scratch. They have said the only way to be appropriately remunerated for their efforts is by way of an upfront commission structure.
Where do you stand in relation to this question? Tell us what you think…
Click here to access the ASIC Review of Retail Life Insurance Advice.
I absolutely concur that we need to stamp out churning but in many cases a replacement insurance contract is in the best interest of the client and to provide this advice the adviser deserves to be compensated for the advice.
I would much rather se testing on the “appropriateness of the replacement advice” and then claw back commission if it is deemed to be a revenue making exercise rather than a generalist view of banning upfront commission.
Even if we went to hybrid or level premium it would not stamp out the practice of churning and in fact could create more churning to try and achieve the same revenue level previously enjoyed so we could see a spike in churning.
We have a shortage of advisers. If you ban upfront commissions on replacement policies, it creates another barrier to entry for new advisers who don’t yet have recurring income so are 100% reliant on upfronts initially.
And just because you’re replacing a policy, doesn’t mean there isn’t a whole lot of work and expertise involved. Clients circumstances change. Clients health changes. Insurance products change. And what if the previous advice was from another adviser?
The life companies would certainly love this! ….Getting a highly skilled and professional sales force to work in more and more new business cases for absolutely nothing. Life companies themselves are the reasons replacements occur as they attempt to out underwrite, out feature, out commission etc., each other at least once every year!
If the intermediary is truly doing what is required of, for and by the client (and that is for the licensee to ultimately decide NOT the life company or even ASIC, not to mention what the client believes) then replacement of a policy may well be warranted and in the best interests of the client. And isn`t that what our role is all about?
In order to assess whether a proposition of removing upfront commissions on replacement life policies I have one question.
What’s the definition of “replacement”?
If its like for like policy and coverage, limited advice if a client or new client says, “hey the premiums are getting out of control, I just want this level of cover but I need a lower premium or I’ll have to cut back on coverage”, then I say yes absolutely ban upfront – where is the professional assessment and advice and knowledge required to present this scenario and recommendation? Its a straight computer program comparison.
In my opinion, in todays environment of best interest duty there shouldn’t be many situations which fall in this category of just comparing costs/product and changeover of policy. Maybe I am naive as to what’s happening in the market place, as personally, I can’t recall one client falling into this category for a long long time.
However, again, I ask what is the definition of “replacement”?
I do not believe that a straight ban on upfront commissions for replacement business is that simple. There are many good reasons why a policy may be replaced. If there are benefits to the client then replacement may be the best option. A lot of work goes into the client review process and we must be remunerated for that work. The answer I believe is more around “why” the business is being replaced. With the likelihood that clients will need to sign an SoA in future why not add more into the replacement table section and have a requirement where the client has to sign off against this.
Definitely feel that churning needs to be addressed.
If it is decided that renewal commission is the way forward, that’s fine , provided we allow some sort of ‘credit’ to be given based on the appropriateness of the financial advice given to the client.
Renewal commissions will slow down the churning and the ‘credit’ will reward the ‘best interests’ appropriateness of the advice.
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