The current life insurance commission model is flawed, but until advisers can be effectively remunerated for policies that don’t complete, and for claims assistance, it should remain in some form, Elixir’s Sue Viskovic has argued.
In her submission to the joint FSC-AFA Life Insurance Advice Working Group (LIAWG) Interim Report, Ms Viskovic said while there was overwhelming evidence to support the assertion that the current, high-upfront commission model impacts on the quality of advice, a suitable alternative model had yet to be proposed.
Elixir Consulting is currently completing a third edition of its Adviser Pricing Models Research Report. Ms Viskovic observed that while research suggests that some advisers have been able to remove commissions from their business model entirely, this is typically when the practice provides insurance as part of a comprehensive financial plan.
“Whilst I have witnessed, and indeed assisted advisers to replace commissions with fees, this model works well for clients who see the value in insurance, and in seeking expert guidance from an adviser (and to some degree, have adequate resources to pay a fee),” Ms Viskovic said in her submission.
“Where clients are apathetic, or simply not motivated to get their affairs in order, I fear that the prospect of paying a fee to review their needs, regardless of whether they successfully get insurance placed, may be a deterrent to engage.”
According to Ms Viskovic, the two biggest challenges that commission-based advisers faced when attempting to review their remuneration model are:
- How to account for the number of clients they provide advice to, where the insurance doesn’t complete, whether by choice of the insurer or client
- How to manage claims for clients
Where clients are apathetic, I fear that the prospect of paying a fee to review their needs… may be a deterrent to engage
She said before any model was finalised, it was important that the complex nature of risk advice was fully understood by those parties making the rules.
In providing a submission to the John Trowbridge-led LIAWG, Ms Viskovic said she “… wanted to ensure that the working group was aware, and could quote to ASIC, the complexities of charging for risk advice, to ensure that whatever model they propose for the future, it rewarded great advice, encouraged more consumers to protect their futures, and enabled advice businesses to deliver such a valuable service profitably and efficiently.”
“We provided a guide as to the average amount of work involved in providing and implementing insurance advice – albeit there is no average (every case is different and a ‘cleanskin’ is virtually non-existent these days). The figures quoted at least go some way to understand just how much work is involved,” Ms Viskovic said.
To view a copy of Elixir’s submission, click here.
Submissions to the LIAWG closed last month. The group is expected to release its final report at the end of March. For more on the Trowbridge report and submissions, see:
To Sue Viskovic:
I have just read your submission to the LIAWG.
You state you are a “passionate advocate of the advice industry” and yet also state there is “overwhelming evidence that the current model is indeed flawed”.
Would you please qualify the source of the OVERWHELMING evidence on which you have based your comment?
If you are basing your reference on the recent ASIC report on Life Insurance as overwhelming evidence, then surely you have assessed the process that was employed and the sample size used compared to total adviser numbers on which the outcomes were based.?
Are the results of this report overwhelming to YOU (as a “passionate advocate”) that the current risk remuneration model is indeed so flawed, there has to be a complete overhaul at some point?
Whilst I accept through reading your submission, you appear to be supportive of and appreciate the real value at the human level of insurance benefits and advice, unfortunately, statements that
are sensational can do untold damage.
We have to deal constantly with misinformed and misguided sensationalist commentary from exposure hungry consumer groups,our friend David Whitely and class action Law firms looking for their next 30% of settlement fee……it would be nice to think that as a supporter of quality advisers and advice that terminology such as overwhelming and flawed should be thought through very carefully before being employed.
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