- Unfairness - clawbacks will apply, even if cancelling or moving the policy inside 3 years is in my client's best interests (60%)
- Uncertainty - to my business, caused by the extended 3-year period during which my income coud be clawed back (23%)
- Unsustainability - my current business could only sustain a 1-year clawback period (11%)
- Unsustainability - my current business could only sustain a 2-year clawback period (2%)
- Other concerns (2%)
- Not sure (2%)
Above all else, advisers have agreed the clawback provisions within the new Life Insurance Framework proposals represent an unfair imposition on their business.
Results from our latest poll show that, of the issues expressed by advisers in opposition to the proposed clawback provisions, 61 per cent rate its unfairness above the other main objections, which relate to the uncertainty to a business that a three-year clawback regime may generate (22 per cent) and the potential unsustainability going forward for a number of advice practices (14 per cent).
In noting this poll is not about whether advisers support or reject the clawback provisions, but rather where the main objections to them lie, one of the next questions is what should be done about it?
The unfairness of the proposed clawback provisions is being openly acknowledged by the AFA in its National Life Insurance Roadshow. AFA CEO Brad Fox, together with other speakers at the Roadshow, has been flagging further discussions about elements of the clawbacks, as well as strategies advisers might use to compensate for it. For example, there is a focus on securing commitment from the life companies that there will be no premium increases during the first three years of the policy. This addresses points raised by advisers responding to this poll:
The issue with a 3 year clawback is still the uncertainty of customers cancelling due to affordability and the excessive premium rises by insurance companies.
If a three year clawback period is enforced then, at the very least, a 3 year guarantee that no premium increases will occur in that time should be mandatory for that client.
In addition to addressing the conditions that will apply to the three-year clawback provisions, advisers are also being encouraged to develop strategies to cope with this change. Commenting for riskinfo on the outcome of this poll, organisational psychologist, David Peake, who is also a keynote speaker in the AFA’s Life Insurance Roadshow, made the following observations:
…we need to focus on the things within our control and not outside of our control
“If something is unfair, it’s important to acknowledge it’s unfair, but also acknowledge that we need to focus on the things within our control and not outside of our control. Be solution focused not problem focused.”
Mr Peake continued, “Even though it’s seen as unfair, advisers can move forward if they can understand what steps they need to take to cover the situation. Aussies crave structure and process, so its important they see a ‘bridge to the future’ that outlines all the steps involved to counter the potential impact of a three-year clawback arrangement.
“Clawbacks will be less of an issue when the relationship with the client is sound, and the value proposition is well communicated to the client,” he added.
This last point was also taken up by life industry legend, Russell Collins, who told his Roadshow audience in his video presentation that the right client engagement strategy will minimise lapses and the associated commission clawback. By creating the right engagement model with clients, Mr Collins believes advisers will achieve an outcome in which they will focus on, and be proud of, their persistency rates, rather than worrying about their lapse rates.
The unfairness inherent in a three-year clawback rule is therefore being addressed by further discussion relating to the circumstances under which the clawbacks will apply, as well as by the industry offering advisers a range of different approaches under which the impact of the clawback provisions can be mimimised.
Russell is an industry giant and what he says we can all take note of. That said, loyalty which underpins much of our clients staying with us or going elsewhere, isn’t what it used to be.
That’s only a portion of it though. Who wants to have to wait 3 full years to see if the income they’ve earned in a given year will be 100% intact or will it be lessened by 5%, 10% or likely a higher percentage going forward? I don’t know of a single industry apart from ours which has such onerous uncertainty-of-income conditions proposed for it.
A 60% upfront in real terms will be around 45% once you factor in the cost of a 3 year responsibility period.
Coupled with the cost of compliance and usual business expenses there will be no real benefit in writing new business.
The choice is simple – live on your trail – starve the product manufacturers of inflows until such point that these new commission terms are changed.
WE HAVE REAL A CHOICE TO AFFECT A POSITIVE CHANGE IN THE INDUSTRY.
If advisers are to lose via the three year clawbacks being proposed then insurers will lose far more and will discover that when they see their new business rates drop significantly after 1/1/16…
Hate to say we told you so but most insurers just do not want to listen which is the real shame.
who frames these questions?
What about “will these changes force you out of the industry as you cannot afford to be held to ransom by the insurers for 3 years?
This is a travesty and a con job!
Yesterday AMP announced it was increasing LEVEL premiums by 10%. Yes that’s TEN PERCENT.
Apparently it is caused by poor investment performance. Under no circumstances could it be possibly be inferred that the product was not correctly priced to begin with, and may have been held down to get more level premium sales
We all know its difficult to sell Level premiums, but a good graph helps. So under the new rules when the client cancels his AMP policy in disgust the insurer still gets the pound of flesh and exercises a 3 year clawback. And regrettably, the adviser probably did not help his cause by casually inferring to the client that level premiums NEVER increase. And yes it still goes on !
My mail tells me the insurers are telling Frydenberg they like clawback. And that they are also saying that they believe only 30-40% of advisers will leave. Talk about self-flagellation
Soon the banks and Insurers will have only detractors in Australia, if not already the percentage must be pretty low for promoters.
And don’t forget The LNP have a tough election coming up hopefully sooner then later,
I wonder why they wanted to create so many detractors, Maybe Tony Abbott, Hockey and Frysenberger are so popular they don’t need support from everyday Australians, rather the Banks and Life Co’s will elect them I guess…..
It appears many people seem to believe that we have to live with and change our thinking to adapt to unfair rules laid down by unscrupulous strategists who have little knowledge of our Industry and don’t give a damn about anything but their own futures and fiefdoms.
Well we don’t have to accept any of their ideas unless it is backed up by verifiable proof and to date there has not been any verification by anyone around churn, which has been the main reason for the 3 year clawback and a cause for the reduction of Commissions.
The AFA said as of today, nothing has gone to cabinet yet, so this ridiculous 3 year clawback can be challenged and we can demand proper analysis, based on real evidence to determine the real cause of lapses and then we can determine the best way forward to counter this, so the Retail Life Industry can be profitable for the long term.
The FSC is alienating the Adviser community and their dogmatic approach to this, is going to backfire when a third of advisers walk away from the life Insurance area and the remaining advisers realise after 12 months that they are better off financially working in less onerous fields that will not take income from them for up to 3 years.
The Life Industry is making the same mistake many of the largest Companies in the world made, when they effectively set up Silo’s within their own Businesses, that would not communicate amongst themselves, which led to internal competition and disasterous financial losses.
The Life Industry has done this by underwriting direct product floggers who are destroying the foundations of the Life Industry, as they are not regulated and are the main cause of lapses in the retail Life area.
Well said Jeremy. I presume the good doctor would happily accept a government edict that his consultation fees be set by them at a level much lower than it presently is. He could ‘accept it is unfair but then move forward bla bla bla.’ Yeah, right!
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