Life Insurance Direct Founder, Russell Cain, has highlighted the nature of recent life insurance premium increases, questioning whether they may represent price gouging.
In a release that positions the question of possible price gouging within the context of the current Life Insurance Framework debate, Mr Cain notes that five recent premium increase letters his business has received come at a time when he says insurers are also campaigning to slash commissions paid to advisers.
… indicators from insurers are that prices will continue to rise
“Logically, lower commissions should mean cheaper premiums for consumers, not more expensive ones,” Mr Cain said, continuing, “However, indicators from insurers are that prices will continue to rise. This leads us to question whether life insurers are price-gouging.”
Mr Cain says lower commissions and premium price rises will not serve the interests of the consumer: “Together, all this does is improve the insurer’s bottom line,” he said. “It’s certainly not in the best interests of consumers and neither does it help maintain the sustainability of the thousands of small financial advice businesses who provide the real human connection that clients and claimants so desperately need,” he added.
Mr Cain, who also expressed his concern for the future of many advice practices within the sector and the ramifications this may have:
“Fewer advisers will translate to fewer life insurance options for consumers which can only increase Australia’s billion-dollar underinsurance problem… Surely any changes as wide reaching as the ones proposed should help prices go down and make life insurance for the consumer – who isn’t paid a life insurance or bank executive’s salary – more affordable.”
It sounds very much like the situation Australia has in regard to petrol sales. Everyone knows the petrol giants are ripping us off when we fill up our cars, but no one has the courage to take them on and do anything about it!
its pretty simple.
I personally have been receiving a dealer split of 60% for the last 8 years and I can attest to the fact you will not survive on it unless the Dealer is also contributing to a significant amount of the costs. Someone has to pay. Over the last 8 years the 40% retained my dealer amounted to $2.2million average $275,000 per year, put that across say 30% of the Risk writers in Australia and the Life Offices are going to make a killing and here they are pumping up the premiums in advance because they will not be able once this “new way” of doing business comes in. Life office staff should not be worried about their jobs as there will be a lot more money to throw around. however it will most likely go to shareholders as profit so the executives can demand a higher bonus.
As has been said many times, this has been driven by the banks and the Life Offices as they think we are earning to much and taking a larger slice of the pie than they are getting.
The only way we can be compensated is for us to start invoicing the Life Offices for the work we do for clients on their behalf. We have done our job once the client has taken our recommendation, and we offer a yearly review. All other requests from clients where we have to contact the life offices on behalf of clients we need to invoice the Life Offices.
Spend 29 minutes every time we phone AMP to provide a real person voice just to get some information for a client. Most Life offices provide shocking service standards.
Ask for a financial pre assessment to be completed in reasonable time.
This is the only way to be paid for our time, charge the Life Office.
“Collusion”……………….
They all met around a table over 3 years ago now and agreed to all this, don’t be so fooled to think otherwise. I don’t know if you remember their BDM’s were out telling us about these changes in commissions because loss of profits before it was even news. I reckon we could even dig up the notes from the meetings back then. I remember telling one to get out of my office if he’s going to cry poor on behalf of his massive Life Co employer.
Planners and their clients have gotten a poor deal, future consumers of life insurance an even worse deal.
Plus these massive Life Co’s are now in the business of bullying small risk only advisers, the fun has only just stated! I can’t wait till they are on the wrong side of the government, won’t be long before they can’t pay good people off anymore. They will only be protected for so long, better take your profits and buy land on a island.
I’ve been waiting for the profiteering comments to start, and here they are. Before jumping to conclusions, it’s worth looking at some facts.
Fact 1: lapse rates in 2015 are significantly higher than say 2010. This is across all life companies. No matter the reason, this impacts life company profits hard.
Fact 2: profitability of life companies is down. Reviewing life company profit announcements over the last 5 years shows life companies profitability has been under a lot of stress and getting worse (you can usually get some good info from profit disclosures made by Aussie life companies – available on their websites very easily). Increasing lapses and higher claim rates have been repeatedly called out. Shareholders of the life companies are requiring higher profits (this is why NAB is looking to sell the life business).
Fact 3: Some products are performing incredibly badly. APRA reports industry wide profits. Income Protection losses across the industry last year were over $0.5b!! So, I don’t think we can expect price reductions there. (While APRA doesn’t report Trauma separately, I’ll bet my house it’s also making losses across the industry)
In this environment, life companies are trying to increase profitability. So even if commissions are a lower cost for them, this will likely be used to minimise required price increases. Unfortunately the life offices have decided to sit quietly and not speak up. Perhaps because they risk negative press by doing so?
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