The AFA has identified the proposed Life Insurance Framework clawback provisions as a critical discussion point ahead of a scheduled meeting with the Assistant Treasurer this week.
In a statement marking the anniversary of the release of ASIC’s Report 413 into Retail Life Insurance Advice, AFA CEO, Brad Fox, says that to ensure the real issues facing the industry remain in sharp focus, the Association is continuing discussions with a range of industry stakeholders ahead of its meeting with Assistant Treasurer, Kelly O’Dwyer.
…the primary concern of advisers is that the three-year clawback pushes too much responsibility from the insurers to advisers
“In the last two weeks we have held …discussions on the life insurance reforms with many advisers including a group of risk-only advisers who have been active in meeting with Queensland Liberal MP, Bert van Manen, a former financial adviser,” said Fox, who continued, “All of these discussions lead to the same conclusion – the primary concern of advisers is that the three-year clawback pushes too much responsibility from the insurers to advisers and doesn’t support the Best Interests Duty responsibilities owed to the client.”
Mr Fox noted the AFA has also discussed this issue with Mr van Manen and will share this thinking with the Assistant Treasurer. “It is important that Government appreciates that shifting of responsibility from the institution to the adviser threatens the future of advisers that own or are employed in small business advice practices,” said Fox. “It also risks worsening the $1.6 billion annual cost to government caused by underinsurance if there are fewer advisers.”
The AFA says it believes the LIF has placed too much focus on adviser remuneration and not enough on creating a long term solution that can deliver a positive vision for more Australians to have the financial security provided by life insurance. “The current framework may deal with some of the public perceptions around commissions, but it doesn’t offer a true win for the public or the common good,” says Fox, who also questioned whether the subsequent reports and recommendations following the release of Report 413 (FSI recommendation for level commissions only, the Trowbridge Report and the Life Insurance Framework proposals) are measures that will actually resolve issues related to regulator and government confidence in the integrity of life insurance advice.
the AFA …will be asking the Assistant Treasurer to support some improvements in the Life Insurance Framework reform proposals, starting with clawback
In its statement, the AFA says it will be asking the Assistant Treasurer to support some improvements in the Life Insurance Framework reform proposals, starting with clawback, and to support the call for the industry to develop a vision for the future of life insurance for the good of the Australian community.
While refering to the ‘strong undertakings’ that have already been made across the industry with regard to raising minimum training and education standards for financial advisers which will deal with the compliance and reputation concerns of ASIC and government, Fox says the real opportunity now is to increase the number of Australians holding advised life insurance: “More people would have the financial security they need which decreases government expenditure to support them. The larger pool of premiums helps achieve economies of scale that can reduce price pressure on premiums. Advisers will have much greater demand on them for advice which ensures their financial viability in a lower commission world. Australia wins if we focus on the right things.”
Good to see the AFA seem to have started listening to their members and doing something that is already being done by advisers but I hope the message is very clear that with a reduction in commission the 1 year clawback has to remain for advisers to survive. My big concern is that the AFA’s negotiating skills have been inadequate to date and I am concerned that they will just try and get the clawback reduced to 2 years and try and dress this up as a win to their members.
We never seem to get the whole picture from AFA not so long ago they were pounding their chests stating the win they had and how much worse it could have been “clawbacks” are for sure the biggest issue but a reduction to 60% in three years is also a ridiculous situation for those of us with staff and overheads to pay ! 80/20 is the right rate at least you can grow with a bit of solid planning And for those of you I hear say live on your renewals must not have the overheads I do ? I have a good renewal base after 39 years but my business could not survive on it
While I’m on the front foot ? Has everyone been aware of the list of life companies lifting rates by up to 20% appropriately before January 1st to avoid further “flack ” I assume ? What a …… joke I have many clients particularly the older ones saying this is way to much for our budget and cancelling and taking the risk despite my best efforts to stop them or is this the underlying idea get the ones out now that are more likely to claim ? These recommendations need a full overhaul not just “clawbacks” which as was just previously said will have AFA hanging their hat on as a marvellous victory should any change at all be achieved
I couldn’t agree more Ken, all of the insurance companies are rushing to raise rates now before January so that they can say next year that “since the changes we haven’t had to raise premiums”. It could not be more obvious and this whole mess could not be more of a stitch up to customers and advisers by the FSC (which should just be renamed insurance company consortium). The whole situation needs to be looked at by the ACCC and government because I think the insurance companies are acting in collusion and illegally.
I wonder if all the parties who put this ludicrous plan together would like to sit down with 60 minutes and some valued long term risk advisers and debate their reasoning for implementing it in the first place. I have heard some wonderful and factual reasoning on why it wont work ! but not one comment { that makes sense or actually addresses the issue} from the other side. We still don’t know what represents “churning” What if any exemptions will their be for lapses beyond our control or what is the proposed commissions of 80 70 & 60% based on ? Annual rates including policy fee or not ? I have had three different opinion posed to me already ?? I am sure there are more issues if you think long enough.
I’m starting to think the Media is the only way to get the right people interested enough to challenge the whole mess that this has become.
I bet the Government would take notice then !
With the 50% reduction in upfront remuneration the ONLY acceptable outcome for these discussions is a one year retention period.
Brad let’s be very clear, only a 1 year claw back is acceptable, anything else is a blatant profit gouge by insurers, shifting the cash flow management of their businesses to us the Adviser.
Note, Insurance policy sales volumes from self employed Advisers represents the majority of insurance company sales, Advisers are the distributors of their products and are paid to advise and distribute, not manage their cash flows. It is wrong for insurers to shift the cash flow management responsibility of their businesses onto us, they must innovate and price products to meet the market.
Any talk of the claw back period being designed to stop churning is wrong. Let’s be clear, churning is the systematized moving of large chucks of insurance polices from one insurer to another every 12 months and not reviewing a clients insurance due to the client request (ie due to cost or other changes of personal situation).
Churning can be stopped by insurers not accepting a known churners business, not via claw back periods being changed!
Commissions and clawbacks are not the problem… they are unworkable solutions to what is a simple problem.
Neither the AFA, the FPA, FSC,or ASIC want to address the real solution to the problem.
If sustainability of the Life insurance industry is a problem, how come the AMP, TAL etal are recording huge profits ??
The starting point should have been to qualify why insurance policies “fall off the books” from the start.
I can tell you when TAL Group increased their Group Life rates by 85.0% no client was prepared to pay that huge increase. So when the client complained under the ” best interest test” who’s to blame for the massive exodus out of the Group Life cover ? Certainly not the adviser.
When Comminsure decided to increase legacy IP products with Lifetime benefits by 53.0% over a 2 year period because they didn’t want these clients on their books even though for the best part of 14 years they’d made a healthy profit out of such policies, who’s to blame ? Certainly not the adviser at the direction of the client to move their cover, it’s absurd to think that any client would accept any of these unreasonable increases. And that’s what the insurance companies were hoping for.
If the other “elephant” in the room is recycling of business by advisers after 12 -18 months, for commission, lets name shame both the adviser and the receiving insurance company and then fine them both up to the level of commission being paid ?
Do you think that might stop that exercise in it’s tracks ?
However if a client loses their job, goes through a divorce, moves employment and insurance is paid by their new employer as part of the remuneration structure or has an accident and is unable to pay the premiums then the 12 months “clawback of premiums should still apply.
But why penalise an adviser after 12 months if any of these events take place that are out of his/her control ?
Any other compromise will sound the “death nell” of the industry.
Asteron also have increased premiums on some of my client’s who held legacy IP with lifetime benefits. Another insurer did the same to some clients who held policies with Level Premiums……go figure
The increases were in the order of 30-50% (that is get them off the books increases), these poor clients came to me asking for an explanation and a solution as well.
It is truly wrong what has happened to these clients, whose policies have been with these insurers for many years, some even decades.
Helping these clients is not churning. The sad thing is when the client is uninsurable or unhealthy now….. they have little or no options!
We then wear the wrath of client dissatisfaction with the insurance industry……
Why is the AFA getting involved ? they do not represent RISK ADVISERS Brad would have no idea the ramifications a 3 year clawback would do, Brad has no idea that CHURNING is not a key issue in the industry and it is policed by the market, Brad has no idea what the difference is in definitions and if replacement cover or take over terms disadvantage the clients, today because of all this hype the consumer is looking at Life insurance products as if they were house and contents policies and they are far from that, did the government not read the Insurance contracts ACT, All this about churning well after 35 years in the industry it was introduced by the insurance companies, known as Take Over Terms, Replacement Insurance and done on Short form applications, they all offered it, it was good for the consumer and offered competition and ease of underwriting and completions, This is how the waiving of periods for Heart Attack, Cancer Etc came about, however long story short, it was also agreed at the time that if a policy was taken over and the new policy was claimed against but the definition from the policy taken over was better the new insurer would honour the better definition at the time of claim, this was known as responsible take over so all this HYPE about definitions being lost is not true. The consumer having Insurance is the first key, at renewal if the premiums go through the roof like Asteron just did, then yes the client will complain and ask for a re quote, sometimes at the cost of a definition or benefit. Price has always been King, Clawbacks have no place in this industry.
MLC , just a moment, remember Brad Fox was an adviser prior to his current role at the AFA. Perhaps the problem is the former Minister Josh Frydenberg held a gun to the AFA’s head to get the current scenario. Im sure that they have done their very best for all of us. Please don’t personally attack the CEO of our Industry Association, vent your anger directly to the former Minister.
Is the gun the threat of pulling out “sponsorship” from the AFA?
Yes but Brad only needs to get 1000 signatures to stop it getting to a vote how hard is that? and he simply wants favor with the FPA and CPA. Did he ever 100% write risk? a financial planner is not a risk specialist, a risk specialist is not a financial planner or adviser, neither is it a CPA or Cole’s nor Woolworth’s job
Hi Steve yes Brad was an adviser, however it is he the AFA and the LIAWG that met with Trowbridge and the AFA backed out yes it backed out the FPA never got involved it did not attend Now the 3 year clawback was developed by THE AFA, FSC and the FPA, not anybody else you work it out.
The AFA states the current framework may deal with some of the public perceptions
around commissions. Can we ask what perception and what public, as the overwhelming evidence is that the public want to retain commissions.
As to the Government regaining confidence in the Integrity of Life Insurance advice,
the first port of call, should be to investigate the FSC submission.
Finally the AFA must demand clarity around the clawback issue and demand a 1 year
responsibility period for any lapses, with the exception of a lapse caused by the original adviser churning the policy, which will be a 3 year responsibility, with a please explain.
I know there will be some advisers who disagree, though we have to be fair in that you
cannot expect to take most of the first year premium as Commission to pay for all the work, put the Life Company on risk and then rewrite 13 Months later and expect full commission again.
If the Life Company increased the premium by 20% in the second year, that is not a churn, that is saving the Business from a lapse and a lost client.
The Life Company needs to pay their outgoings just like us and expect a profit too, they just need to take some responsibility for their own actions and not pass the buck to advisers for their inefficiencies.
However the AFA and FPA must start asking the hard questions on why the FSC and others demanded what they did and what proof do they have that their demands would benefit consumers and all participants that keep the retail Life Insurance Industry alive.
I have read the AFA Press Release and like Reality Check I am concerned that the AFA seem once again to be seduced by just one point of discussion – this time, the three year Clawback.
Hell that’s important but the reduction of commission any further than 80/20 is equally important and will not be approved by the Risk Writers members of AFA IF they are ever asked by individual email survey with no manipulative questions. Gen X seminars and Risk Info surveys do not cut it, Brad. Ask us directly
I continue to read posts where many advisers are pointing to the AFA as the driver of some relatively poor policy that has been endorsed by a disinterested coalition. The policy was designed by the FSC, endorsed by a general insurance actuary, presented to a clueless Frydenberg and rubber stamped as they can see no votes in it.
The AFA – maybe somewhat naively – believed they were working to an ‘industry’ solution but at the 11th hour were blindsided by the FSC.
A two year responsibility period was the norm in the 80’s and 90’s and is far more equitable for all parties. The best interests duty is the real loser in the three year option and that is what we need to focus on.
We also need to challenge the flawed and largely discredited ASIC report – this was a report done on a small number of high volume writers who had high lapse rates – in other words the industry churners. This targeted report has since been used as the cornerstone of the need for change and its findings applied to the broader advice industry and is quoted throughout the process.
THE AFA may have been duped by the FSC but having been party to the discussions that have been going on in the background they have always had the advisers and our industries best interests at heart.
Our focus should be on the FSC and ASIC and if you want to have an impact on the government you will have to make losing votes part of the deal.
Paul the 2 year responsibility period applied to Life Policies with Investment components and has NO PLACE in the marketplace we are in today.
The responsibility for this nonsense rests with the AFA who gave the whole thing credibility and who are now facing a disaster for its members, having gone along believing that there was some overarching government driver for change. Again no credibility at all at the AFA board level and no plebiscite of the members to see what they wanted.
This is just a classic case of being led down the garden path by the FSC and clearly done completely over.
Best the AFA now walk completely away from this and tell the assistant Treasurer that there is no merit in anything the FSC has proposed.
To propose that they will be trying to negotiate a three hump camel down to a 1 hump camel is ludicrous and bears no reality to the market. Why is the AFA trying to dictate market terms? Just another case of the AFA not understanding what it’s doing.
The advisers would be better off if the AFA took the same policy stance as the FPA who appear to be somewhat bright about the whole issue.
I agree Old Risky. Yet may I suggest the following as a survey for Risk Only Advisers, the results of which may show how they really feel!
A. Here are the current and proposed scenarios;.
a) 1 year clawback period
b) 2 and/or 3 year clawback period
c) Upfront Commission with 80/20% Hybrid and 30% Level options
d) 80/20% Commission with 30% Level option
e) 60/20% Commission with 30% Level option
B. Choose the option that best suits you and your business?
1. a) and c)
2. a) and d)
3. a) and e)
4. b) and c)
5. b) and d)
6. b) and e)
B 2 thanks
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