The release earlier this week of a report written by NSW risk specialist adviser, Brett Wright, arguing the case for retaining life insurance commissions, has garnered strong support from many corners of Australia’s life insurance industry (see: The Case for Retaining Risk Commissions).
Scroll below to consider a selection of the views offered in response to Brett’s paper (download report here).
These comments represent a cross-section of the industry which includes life company CEOs, licensee chiefs, other industry stakeholders and your adviser peers. Your own comments are also welcome as we continue the debate about the future of life insurance commissions in Australia…
Background
Taken from Riskinfo’s story earlier this week on the release of Brett Wright’s Advised Insurance Alternatives report:
Industry Responses
Life Company CEOs
In a professional advice industry, with strict regulatory and ethical standards, robust controls and oversight, the current commission model is both appropriate and sustainable. Combined with DDO and Unfair Contracts legislation, consumer best interest is well served and protected. Further changes to insurance commissions will only have negative consequences for middle Australians with no alternatives except government welfare or inadequate group cover.
Insurance sector sustainability and the best possible outcomes for insured Australians provide the focus for the Advised Life Insurance report. The value and role of a vibrant, engaged and appropriately remunerated advice profession is fundamental to building a future-proofed bedrock of sustainable, best-interest consumer outcomes and benefits.
We all understand that the question of adviser remuneration has a vexatious history. However, this report makes a compelling and clear case for the holistic benefit of commissions to the consumers of advised life insurance. I encourage those with an interest in solving the challenges of under-insurance in Australia, or of simply seeking to know the positive impact that appropriate, best-interest commission structures have on the lives of insured people, to read this report.
The report also provides an incisive analysis of the benefits of individual advised cover for consumers over direct and group cover which, while they have a place, are severely limited by comparison.
Licensee CEOs
It’s inspiring to see that the next generation of professional risk planners grasp the very foundation of what drives an economical Life Insurance Sector – Life Insurance is a pooled event. Well done, Brett.
Brett has broken down an issue that people are trying to make complex and has turned it into something relatively simple. The very concept of insurance is a simple argument and the same applies to retaining life insurance commissions.
The Advised Life Insurance report authored by Brett Wright outlines many of the key issues from a practitioner’s point of view that lead directly to the accessibility and affordability of Life Insurance.
If an industry construct is further created through decreased commissions where restrictions are placed on a consumer’s ability to access and afford advice, the social and community impacts will result in broader under-insurance, financial hardship for Australian’s in their time of need, and as a result an increased demand on the welfare system.
Advice Advocate, Business Owner
It’s staggering that we still have to defend Life Risk Commissions. The LIF reforms have not delivered the industry profitability (sustainability), or cheaper premiums that was promised. Quite the reverse. What if the premise was wrong and commissions weren’t to blame at all? What if insurers looked at the mounting evidence and asked themselves ‘what if we were to blame?’
Our situation is perilous, we need to work together to rebuild the vibrant life insurance sector that all Australians deserve.
Advisers
Over the past year ABFS has averaged over $1m a month in claims and if it weren’t for the current commission model, a large portion of these clients would have been left to fend for themselves.
Our client engagement process includes a full disclosure on the commission model and every single client understands that; from stamp duty and mortgage insurance on a property purchase through to your income tax, Australians understand and appreciate the simplicity of a percentage commission model. The beauty of the current model is that it gives the consumer 100% visibility and choice.
The cost incurred in providing risk advice to the average Australian has been rising for the past 3 to 5 years and this has meant a larger percentage of individuals not being able to seek advice.
Brett’s observations are an accurate reflection of the current environment; it has become more difficult for the average Australian to receive advice and obtain insurance specific to their needs. If commissions were removed, this trend would be accelerated, reducing even further the ability of Australians to receive advice. This is especially true for those with young families watching their expenses and those small businesses trying to get off the ground.
The final word – for the moment – goes to the report’s author:
With the government, opposition and regulators continuing to say they would support a ban of commissions, I wrote this report with the sole purpose of starting open, honest, transparent and fact based conversations with politicians, regulators, life insurers, associations, licensees, advisers at the coal face, and most important of all, the consumers we serve.
I totally understand the government wants change, and I want change too, but the changes need to be well informed, financially viable and drive simplification and innovation in the sector, so the industry can provide a faster, fairer and better experience for all Australians, instead of adding more and more red tape, suffocation and increased costs for all.
My argument isn’t trying to say that life insurance advice should be funded by commissions only. I believe there is room for fee for service (FFS) and consumers who want and/or can afford FFS can access this option already. But FFS should not be the only option and it is essential consumers maintain their right to choose between the commission and FFS models, and decide which is best for them.
I’m totally frustrated with the lack of direction in life insurance and advice, and it is safe to say that most advisers and their clients are at their wits end too. Working with clients and also seeing how other advice businesses help their clients every day, I still can’t fathom how or why we are still sitting here questioning the value of life insurance advice and commissions, when advised clients who fund their advice through commission generally have access to better benefits, better premiums, better claims services and have cover that is fit for purpose, when compared with outcomes if they tried to DIY.
The message isn’t getting through to government and regulators and it’s time advisers made sure it did…
The message isn’t getting through to government and regulators and it’s time advisers made sure it did from the bottom up, because the top down approach has not been working.
There are many issues the life insurance industry and advisers are facing, but if we can’t get the policy makers to acknowledge a ban on commissions won’t work, then the rest doesn’t matter. All stakeholders need to put self-interest aside, because what’s best for consumers, is ultimately what’s best for all of us in the long run. The #1 industry issue to solve now, is ensuring life insurance commissions are not banned.
Brett Wright has 14 years’ experience in life insurance advice and is a director of his family’s 33 year-old life insurance advice business. He advises a diverse range of clients from young families through to large corporate key person insurance clients and he is also a director and founder of an Insurtech platform that is used by some of Australia’s largest insurance and risk advisory businesses to revolutionise consumer access to quality, affordable life insurance advice and products.
Well done, riskinfo and Brett.
Well done Brett.
Its very disappointing though to hear the Life company CEO’s still trying to justify the current commission rates as “appropriate”. They are not.
I think its fair to say that we all know that the loss of commissions will bring the Life companies to their knees and will worsen the underinsurance issue further but I’m not sure what more needs to happen to convince those that don’t actually advise on insurance that 60/20 with a 2 year clawback does not cover the costs of writing new business?
Lets look at the direct results of the LIF:
1. New business is dramatically down as much as 50% for some companies. This is because the current commission rates do not cover costs and clients do not want to pay fees. Underinsurance has worsened due to the LIF
2. The insurers have increased premiums for existing customers to offset new business reductions. There has been round after round of increases. Lapses have worsened, underinsurance has worsened.
3. The insurers have reduced premiums just for new business. This has and will encourage “churn” in direct contradiction to what the LIF was supposed to discourage.
4. We now have less insurance companies and less competition. The buyers of Comminsure, Asteron, Onepath have all increased the premiums for the customers of these companies post purchase.
The LIF has failed on every count and customers are now worse of than ever before because of it.
How much more does it take for the FSC / Insurance companies and ASIC to take a good hard look at themselves and say “we made a mistake, we got it wrong”?
Well done Brett! When it comes to getting the message through, I stand by what I have been saying in Risk Info these past few years. The CEO’s of the insurance companies, the heads of the AFA and FPA, and other major players, all must go the government collectively, and state the case, not only for the maintaining of commissions, but their reinstatement to appropriate levels, and basically the abolishment of FASEA and their ridiculous impositions.
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