The Australian life insurance market could suffer a 30-40% loss in new premium income if the Trowbridge Report recommendations are adopted, DEXX&R has warned.
The researcher said that while detailed modelling had yet to be undertaken on the impact of the recommendations, it was likely that individual risk new premium income sourced through the advice channel could significantly reduce.
According to DEXX&R, the Trowbridge recommendations shift the cost of funding the initial loss incurred on the acquisition of business from the life companies to advisers. Taking into account the substantial increase in capital that each adviser would require to continue writing new business, DEXX&R argued that a 30% to 40% reduction in new business “may be a significant understatement” of the impact of the recommendations on future new business inflows from the advice channel.
To illustrate the point, DEXX&R calculated the typical cost of providing personal advice to be around $3,000. This figure includes tasks such as: face to face meetings with a client; completion of the fact find, needs analysis, and research; preparation of recommendations; and the completion of all new business requirements, which may include arranging medicals, statements of financial position and follow up as required.
…a 30% to 40% reduction in new business may be a significant understatement
To recover this $3,000, the average premium per client under the current up-front commission arrangements has to be $2,500. Under the Trowbridge recommendations (which propose level commission of no more than 20%) the average premium per client would need to be $9,000.
“To put this into context a $2,500 annual premium would provide $2.6 million in Death and TPD cover for a male 35 year old non-smoking white collar employee,” the researcher said.
“A $9,000 annual premium would provide $9.5 million in Death and TPD cover, although the maximum standard TPD that could be purchased is currently $5 million.”
This would also mean that advisers would only be able to cover their current cost of advice if they were selling to the top end of the high net wealth market. DEXX&R believes that servicing the middle income market would only be possible for advisers with access to significant capital resources and the ability to spread recovery of their first year new business costs over an 8 or 9 year period.
This analysis formed part of DEXX&R’s latest Market Projections Report, which predicted that individual lump sum inforce premiums would increase from $6.1 billion at December 2014 to $15.3 billion by December 2024. Individual disability income inforce premiums are projected to increase from $2.3 billion at December 2014 to $6.0 billion by December 2024.
I agree will be no new business policy
An issue I forsee once Trowbridge is implemented is that we will see statements like ‘80% reduction in replacements business – Trowbridge has stopped churn’ and the FSC & Government will walk away thinking it has met its objectives.
Obviously Mr Trowbridge does not understand that Life insurance has to be sold, people generally do not buy Life Insurance like insuring your tangible assets such as your car and home & contents insurance. Generally planners avoid writing Life Insurance and handball it to somebody else because it involves selling. I believe if the incentive of even Hybrid commissions are removed the current uninsured problem will become a crisis! because Life Insurance Advisers will just disappear.
we all told you so
IT IS A SET UP . THERE WILL BE NO LOWER PREMIUMS OR ANYTHING ELSE
HAVE YOU EVER KNOWN ANY INDUSTRY TO BE MAGNAMINOUS WHEN IT HAS THE HIGH GROUND
Screwed again. If the new business does drop by even 30% which is likely insurance companies will suffer. They will have an ageing book with a high rate of discontinuances due to increasing premiums with older clients and a reduction coming through for future generations from non aligned planners (non employee/bank). It will mean more and more people will fall on Centrelink for support. I for lane am glad I am moving towards investments with minimal risk premiums written and a few years left. It will put more pressure on claims with as one person noted no reduction in premiums just like when group super lost it commissions no reduction in premiums more for the companies.
They have played a very cunning game and I think it will come back to bit them and I hope it does to teach them a lesson.
Note the bank planning groups must be laughing all the way as they will be the biggest winners. The losers are everyone else including the taxpayers.
Who would want to be in business when it cost you upwards of $2,000 plus to give advice and you get paid a paltry 20% and hope you can survive as a new advisors losing money for up to 8 years.
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