ClearView Wealth has restated its support for life insurance commissions as a legitimate remuneration model and urged the government to make financial advice fees tax deductible.
A statement from the company says this took place during two-days of public hearings on the insurance sector, before the House of Representatives Standing Committee on Economics (HOR) on 28- 29 April, 2020.
Representing ClearView at the HOR Standing Committee’s Review of the Four Major Banks and Other Financial Institutions, ClearView Managing Director Simon Swanson reiterated the group’s public policy position that the most pressing matters for the industry, aside from managing the impact of Covid-19, remained:
- Stable life insurance commission rates with no further changes
- Tax deductibility of advice fees
- Unrestricted choice of life insurance provider for financial advisers and their clients.
The statement from ClearView says: “In response to research cited by committee member Dr Anne Aly MP that 78 percent of consumers who obtained life insurance through an adviser preferred to pay an upfront fee for advice with lower insurance premiums over the lifetime of the policy, Mr Swanson said that advisers and their clients should continue choosing the most appropriate payment method, based on a client’s unique circumstances and needs.”
“ClearView does not promote one remuneration model over another for life insurance advice.
“With the group’s flagship LifeSolutions product series, advisers can opt to receive commissions or reduce the commission to zero and charge a fee. They can also rebate commissions to the client and charge a fee, or accept a combination of fees and commissions,” it says.
Swanson also updated the Committee on how ClearView was responding to the Covid-19 pandemic and its impact on staff, policyholders and customers.
ClearView says the main ways it is supporting policyholders and customers at this time include:
- No specific exclusions for claims arising from a pandemic event
- Worldwide coverage, meaning all customers are covered should something happen to them while outside Australia
- Healthcare workers are not prevented from accessing life insurance
- LifeSolutions premiums may be waived for up to three months, due to financial hardship caused by involuntary unemployment
- Policyholders can place their cover on hold for up to 12 months, without having to go through the underwriting process again to reinstate cover.
Nice of ClearView to take this timely step to reinforce the importance of commission, especially after they increased some level premium rates by nearly 70% this year!
ASIC blamed churning for the need to lower commission [or eventually remove it] and extend the claw back to 2 years.
The advisers who trusted ClearView who advertised [along with a couple of others] their ‘true’ level premium rates have had the mud slung straight back into their faces.
A fellow [and much larger] AR than me was a big advocate for ‘true’ level premiums and is now suffering the massive financial impact of [mainly] 60% claw backs and having to be forced to ‘churn’???] a significant number of level premium IP policies.
Since 2018 the ONLY level premium product I was prepared tp trust was TAL’s guaranteed to age 65 or to Term Life rates. Explaining to each relevant client accepting my advice that at each policy renewal the auto 5% indexation was charged at their then age next birthday. Only their original premium at inception was a true guaranteed level premium rate.
The savings over many years is achieved for those [mainly] younger clients with young children & a likely 25-30 year debt scenario.
All ClearView had to do was look at the Lumley Life guaranteed IP premiums that ceased to be offered in 2002. I have clients from 2002 & earlier paying 30-40% of the current STEPPED premium rates with TAL [the eventual acquirer of Lumley?PrefSure] wearing the high cost of being forced to maintain these guarantees.
Thanks for nothing ClearView! The one client I wrote on their ‘true’ level premium IP product I will have to approach in September with the news her renewal premium has gone up by 67%. The only upside for me is the fact the policy is at its second renewal [i..e into its third year]
I have over 2000 clients acquired over 40 years and I cannot remember one saying they preferred to pay a fee !! Cheaper ongoing costs or not ! People will always be mercenary to their own wishes and obtaining a cheap as possible premium with all the benefits they need ( not a bucket full that rarely if ever get used ) is what drives them
This ongoing onerous drive to substantiate fees over commissions is so misguided it should have its own Royal Commission to sort fact from fiction.
We are now at 60% commissions and apparently
more than half of all clients prefer to pay a fee rather than commission
( maybe if investment advice is also provided in a holistic 65 page SOA) so why is it every week I see ASIC has banned yet another adviser ASIC has cancelled a Licensees AFSL This idea that getting rid of commissions assist the client, stops churning, and overall produces a better adviser is laughable it it was not so serious
What a mess has been created out of greed and now those very same greedy companies who “wound”up the FSC and ASIC into believing all this are bailing out of their portfolios as the are no longer viable Westpac the latest we assume ?
Who’s fault is that !! ? Massive premium increase s an overall major exodus of advisers who cannot survive on the income offered in commission or indeed the fee that the client is prepared to pay ( and more exiting of advisers to come) Advisers are the major source of business to insurers don’t ever be told otherwise.
“Bogged”down with onerous amounts of “Red Tape”and expensive useless exams that help no one least of all the clients and limited vision by actuaries when these products were developed on the 1990’s and early 2000’s and that short sighted vision has come back to “haunt” them ( age 65 or lifetime benefits to heavy risks as an example )
No say the Companies ( we live in your world BS ) We are not wrong it’s the adviser and their evil remuneration structure ( commissions) that’s it let’s blame that
Oh dear what a tangled mess we weave.
I doubt it can ever be fixed
For the last 12 months we have had a conga line of insurer CEOs traipsing to Canberra, cap in hand, to ask that commissions be RETAINED for life risk. Looks good, huh!
BUT NONE OF THEM TOOK THE NEXT STEP ! Those CEOs, seeking, as usual, to walk both sides of the street, and perhaps seeking just a little longer period of reduced distribution costs to boost profits and executive bonuses( thank you LIF), have FAILED to take the next logical, and indeed strategic step, of telling Government that the 66/22 rate and the 77/22 rate are not sufficient to keep risk advisers in business. Everyone now knows advisers can survive on 88/22, perhaps with a modest advice fee. Even better if that advice fee was always tax deductible to the client.
Risk advisers are bearing MOST of the brunt of LIF. Add FASEA to that, and its a nightmare – supposedly we have lost some 2500 advisers, but it is said many of those were institutional advisers, not self-employed advisers. The detail is not there, or its being hidden.
The other victim of LIF short-sightedness are the insurers. I believe experienced advisers with modest to large books have ceased to write New Business on NEW LIVES, preferring to increase existing policies on pre-LIF rates. Why would you, with a TWO YEAR CLAWBACK !
The impact of reduced commissions, and that clawback under LIF is that there is much less NEW YOUNG RETAIL BLOOD coming into the Statutory Number 1 Funds, at least from mature risk businesses. For the few new risk advisers, they do not have a choice, they must use LIF rates, and try to impose fees. For proof, count the number of underwriters who have been lost. That 2 year CLAWBACK will hit advisers with a dull thud when COVID-19 stops premiums
Yes, IP claims in particular have increased, but no more than in previous times. There is a lot of SPIN around IP claims. The real issue is that while underwriters may obtain a “fresh look “at their risk book when existing policies are INCREASED, the underwriters can only “rate” for the INCREASE. That “legacy”book stays in place, with all the inherent claims risk to the insurer of ever increasing life insured age.
At the risk of opening myself up to cheap jibes, in one way Statutory #1 Funds are a type of Ponzi scheme, wherein the new healthy and young entrants into the POOL are paying the claims of the older long-stay life insureds. We now know that APRA, still squealing after a mauling in Hayne, will impose even more ridiculous reactive restrictions, instead of addressing the root cause – why is there an absence of fresh new fully underwritten lives entering #1 Funds.
APRA apparently do not see their role to be preemptive and tell ASIC and Government that LIF has left insurers looking rather naked. The Emperors advisers are still not capable of discussing the real issue- the impact of LIF on NEW BUSINESS, and therefore on refreshing #1 funds with a supply of NEW risk.
As to increases in LEVEL premiums, I believe some of the problems are of our own making. I have spoken to clients of other advisers who apparently mouth words that LEVEL premiums are “guaranteed”. That is just BS ! Better to explain that the “relativity” between level and stepped premiums means that if claims are driving up stepped premiums the same proportionate increase should occur to level premiums, preserving the “relativity”, and still providing long term savings.
But poor decision making, and a reluctance to put up LEVEL premiums in a low investment environment, have led to stupid decisions. Comminsure forewent two opportunities in recent times to increase level premiums as stepped premiums increased, and then, as CBA departed, was forced to announce increases of 25% plus to level IP premiums and wonder why policies lapsed.
Thats just poor management, and yet another example of what happens when a banker is put in charge of a life insurer.
Finally, my crystal ball tells me that the strategy of rolling funds out of super to fund retail life insurance premiums may be for the chop. You can bet the industry funds will be arguing that such rollovers are not in the interest of members, particularly those funds holding ill-liquid or unlisted assets, who have been forced to sell assets to pay out $20,000 to persons impacted by COVID. That 2 year clawback will be in play.
All Life Insurance companies should be strongly arguing that the commission rates need to be lifted to the original Hybrid model of 80/20….but they seem to again remain silent.
The ridiculous position taken would mean that the remaining quality, experienced risk advisers would be able to at least cover their initial advice costs and this would result in an ncrease in the volume of new business.
Behind closed doors many management and senior BDM’s agree this was the workable balance which would allow advisers to be remunerated fairly whilst dealing with the supposed churn incentive of higher upfront commissions.
But here is the other answer that should have been implemented following the ASIC 413 Report.
Any Life Insurer knows through the new application process when an existing policy or policies were last implemented and underwritten.
If the application for replacement business is to replace policies within the 2 year period from the last date of inception, the remuneration model would dictate that only level commission was payable….no Hybrid, no Upfront……level only.
This model would have instantly dealt with any policy replacement issues not only from another adviser, but from the existing adviser within the first 2 years because any larger financial incentive would have been removed.
This would have allowed ethical and professional risk advisers to continue to be remunerated on a lesser basis than the original upfront model and generate a higher ongoing commission basis by which to continue to service their clients.
What has resulted is unworkable moving forward with vast numbers of experienced advisers leaving, new business volumes dramatically decreasing thereby reducing the insurance pool and rapidly escalating premium costs resulting in customers cancelling valuable cover thereby further reducing he insurance pool.
This is currently an unstoppable snowball that will implode the Life Insurance business if something is not done very quickly to rectify the problem that should never have happened if
the people that knew were listened to.
It’s time the Life Insurance companies showed the courage and determination to tell the Govt a mistake has been made and before the full impact of that mistake is irreversible, a complete re-think has to be forthcoming to ensure Australians can continue to access and receive quality risk insurance advice ad strategy to protect themselves, their families and their businesses.
It would be interesting to see what other responses there were to the fabricated report from Dr Anne Aly, that 78 percent of clients would prefer to pay fees compared to Commission, for Life and Disability advice.
This outrageous lie has been perpetrated by manipulation of how the research was conducted.
Clear View should have questioned how many people were asked, exactly what questions were asked, or statements were used and in what context.
There should have been alternative scenarios to even up the obvious bias that this research has shown itself to be.
The reason why the Life Insurance Industry is in the mess it is in, is because of limited research, with an agenda to skew the argument, was portrayed as fact.
The actual facts are, the LIF was based on a series of manipulated mistruths and all Australians are going to pay the price unless this is changed and the real truth becomes the focus, to bring about change that will save and rebuild the Industry.
Funnily enough, she is a labor MP so no conflict of interest here. So my guess is the “research” took place with labor &union members or maybe her staff.
The push to eradicate life insurance commissions from some sectors is not based on logic, but based on ideology and an assumption that the term commission automatically creates a disadvantage or conflict in the advice provided to the client.
If the term commission was to be replaced with an alternative term, would the issue be as great ?
If commission were replaced with the term Insurance Advice Payment or Insurance Advice Fee, does this make the connotation more palatable ?
A fee can be paid from within a product and so this would be acceptable terminology.
The consumer should have a range of options as to how they pay for advice and the advisers should have a range of options to use in their business to suit each client.
What the anti commission pundits want to do is prescribe and dictate exactly how customers would pay for advice and remove choice.
Why is removing choice a good thing for customers ?
A $4000 annual premium would decrease to between approx $2800 and $3000 if the commission was removed from the product.
If the commission were left in the product, the adviser would be paid approx $2400 if using the 60% model.
Whilst the cost of providing the advice will be greater than $2400, if we use this figure as the advice component and then issue an invoice to the client for this amount, the client will still have to pay the $3000 for the product cost.
The client will now be paying a total cost of approx $5400 for advice and product combined.
The commission model would allow the client to receive the advice and the product for a total cost of $4000.
The clients total cost has just increased by 35% for both advice and product if no commission is paid and the adviser were to charge an advice fee equivalent to the commission that would have been received..
I want Labor MP Anne Aly to clearly explain how this example will leave the consumer in a better position and encourage them to seek quality risk insurance advice at an affordable cost.
I also want Anne Aly to explain why the removal of choice would be in the consumer’s best interest.
Comments are closed.