If you had to choose, which remuneration model would you prefer when writing replacement life insurance business:
- Hybrid commission, retaining the two-year clawback requirement (66%)
- Flat commission only, with no clawbacks (27%)
- Not sure (6%)
Adviser remuneration for replacement life insurance business has been a protracted issue for many years, as it is integrally associated with the churning debate.
Our latest poll asks you to consider what is a theoretical question at the moment, but one which may occupy the minds of regulatory decision-makers over the next 12 months.
As we’ve stated elsewhere, Riskinfo supports the continuation of risk commissions, and at a level that will allow specialist risk advice businesses to remain viable (see: 80/20 Works).
As usual, though, the argument that supports a return to an 80/20 hybrid commission model is one that exists within an eco-system of related issues – one of which revolves around the current two-year clawback period.
We recently asked a risk specialist adviser whether he would support flat commissions only on replacement business if this meant a return to an 80/20 hybrid commission model. The adviser said he would prefer to still be able to access 80% commission in the first year and retain the two-year clawback requirement, rather than forego the 80% upfront in favour of (say) 30% plus GST flat commission, but with no clawbacks attaching for early policy cancellation.
His argument was that regardless of the fact it was replacement business, he would still be required to undertake fact finding, due diligence, SoA preparation and other compliance processes in order to place the replacement policy on the books. His simple argument was that a 30% flat commission arrangement would not be sufficient to cover his time and effort and cost to the business involved in implementing this solution.
From the outside looking in, however, the regulator may consider that flat commissions on replacement business would act as a disincentive for churning activity (to the extent that it remains an issue).
Where do you sit on this question?
As usual, there are nuances involved. For example, you may have a different answer at 60/20 as you might at 80/20. This is because the total commissions under a flat commission arrangement would take six full years to equalise at 80/20 (ie 80/20/20/20/20/20 v 6 years @30), but it would take four years under the current 60/20 hybrid model (60/20/20/20 v 4 years @30). This may make a difference for some advice business models; for others it may not.
We again emphasise this is an entirely theoretical conversation, as the industry awaits the outcome of the 2021 ASIC review of the quality of life insurance advice.
In the meantime, it’s over to you, and we welcome your views on this question…