{"id":29306,"date":"2015-04-07T23:13:14","date_gmt":"2015-04-07T12:13:14","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=29306"},"modified":"2015-04-08T01:28:03","modified_gmt":"2015-04-07T14:28:03","slug":"trowbridge-model-a-necessary-improvement-rice","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2015\/04\/07\/trowbridge-model-a-necessary-improvement-rice\/","title":{"rendered":"Trowbridge Model a ‘Necessary Improvement’ – Rice"},"content":{"rendered":"

Rice Warner MD, Michael Rice<\/strong>, has added his views to the proposed Trowbridge Reform Model, calling it a necessary improvement for the industry.<\/p>\n

<\/p>\n

\"Rice<\/a>
Rice Warner MD, Michael Rice<\/figcaption><\/figure>\n

In a commentary released just before Easter, Mr Rice, who has operated his research firm since 1987, considered the history of life insurance commissions before delivering his qualified support for John Trowbridge’s reform package.<\/p>\n

The research firm MD drew some parallels between increasing commission rates in recent decades and worsening lapse rates: “There has been a price war for advisers over the last 20 years and upfront commission has doubled in that time. Further, the persistency [clawback] period has relaxed from two years to one year… The relaxation has led to a doubling of lapse rates over this time, indicating that some advisers shop around policies every few years to earn further initial commission.”<\/p>\n

Most consumers would … query why they pay [fees] on life insurance, but not on general or health insurance<\/h6>\n

While supporting the notion of a flat commission structure, Mr Rice nonetheless feels it would be going too far to suggest advisers should develop a fee for service model for providing life insurance advice to consumers: “The facility is already available, but few advisers use it,” he said. “The initial cost of providing the advice is likely to exceed $1,000 and could conceivably be much more in many cases. Most consumers would baulk at paying these fees and most would query why they pay them on life insurance, but not on general or health insurance.”<\/p>\n

Mr Rice continued, “The Trowbridge report recognises the practicality of retaining a commission system, but recommends tilting it towards a renewal structure, with a maximum of 20% of each year\u2019s premium. The main advantage of this is that advisers would have less incentive to shop around and recycle products every few years…”<\/p>\n

“The difficulty for advisers if they earn renewal commissions,” continued Mr Rice, “…is that they will not get fully paid at the time they do the work. They will need to borrow against future cash flow to pay their bills. Trowbridge recognises this and suggests a fee of $1,200 per client be paid by the insurer in addition to the commission.<\/p>\n

…the proposed structure is a necessary improvement<\/h6>\n

“It remains to be seen whether the structure will be endorsed by ASIC and then whether it can be implemented seamlessly. We may still see a number of advisers choosing to exit the market. However, the proposed structure is a necessary improvement. We can expect lapse rates to fall, making retail life insurance more profitable and possibly cheaper for consumers in the long term,” he said.<\/p>\n

“Advisers who can manage their cash flow will have an increased value on their portfolio of clients since renewal commissions will be higher,” added Mr Rice.<\/p>\n","protected":false},"excerpt":{"rendered":"

Rice Warner MD, Michael Rice, has added his views to the proposed Trowbridge Reform Model, calling it a necessary improvement for the industry.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8,270],"tags":[],"class_list":["post-29306","post","type-post","status-publish","format-standard","category-compliance-regulation","category-remuneration"],"_links":{"self":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/29306","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/comments?post=29306"}],"version-history":[{"count":0,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/29306\/revisions"}],"wp:attachment":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media?parent=29306"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/categories?post=29306"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/tags?post=29306"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}