Insurance provider, Synchron, would support a new model for adviser remuneration if it were driven by competitive forces rather than imposed by the Financial Services Council (FSC).
Synchron director, Don Trapnell, has been a long-standing and vocal critic of the FSC’s vision for a new life-insurance framework, accusing large life-insurance companies of collusion and anti-competitiveness.
In August, the FSC announced a new self-regulatory standard effective from July 1, 2013 that includes a controversial clawback mechanism and a consistent responsibility period.
“What we are seeing now is life insurance companies, via their association with the FSC, working together to form a policy that imposes a uniform remuneration model with uniform responsibility periods on advisers,” said Trapnell.
“That is anti-competitive and Synchron will never support that kind of behaviour.”
The fruit of competition
He added that it was competitive forces that introduced a one-year adviser responsibility period in the past and it should be competitive forces that reshape responsibility periods in the future.
“In the 1970s, advisers had a three-year responsibility period. By the 1980s, due to competitive pressures, this moved to a two-year responsibility. By mid-1980, again as a result of competitive pressures, this moved to a one-year period,” Trapnell said.
“These changes were the result of a competitive market at work.”
Withdraw the clawback clause
The FSC has proposed a clawback process in relation to upfront commissions, which would result in 100 per cent of the commission being paid back to the insurance company by the adviser if a policy lapses in the first year.
If the policy lapses in the second year, 75 per cent would be paid back and, if it lapses in the third year, 50 per cent would be paid back.
It is Trapnell’s belief and Synchron’s position that policies lapse for a variety of reasons, many of which are outside the adviser’s control.
“It’s a fact of life that client circumstances change and what once suited them may not suit them, three or even two years later,” he said. “This is not the fault of advisers and advisers should not be penalised for it.”
Cannot disagree with Don Trapnel, its always the minority who taints it for the good guys. Instead of a blanket approach which is in the Insto’s best interest [and not the client] surely the Insto’s have files on the bad operators and should treat them accordingly? Secondly, remember FOFA is pushing advisers to get the best deal for the client and if an Insto is trying to get market share by offering a better deal for the client what is the adviser meant to do? Ignore it? I am sure FOS or COSL will take a different view if a client complains. This is another typical example of how badly the FOFA fiasco was manipulated to suit the political agenda of the chosen few.
With all of the evidence suggesting that advisers bring competitive pressures that increase quality and decrease premiums and no evidence to support the contention that churning is an issue let alone increases premiums the FSC must drop this campaign.
FSC have admitted that even if an Income Protection client died in year 2 or 3 after policy written and the policy thus lapsed, the current ruling would still claw back 75% or 50% of the commission.
Clearly if I let a client die i am not looking after my clients properly and deserve to loose the commission ?? Yep that is a great process FSC.
So what is it insurance companies? You can either work out from the stats who is churning or you can’t?
Clearly you can but it makes it a lot easier to you say you can’t and thus use this extremely broad brush FSC silly policy to change the remuneration rules based on the churn problem – but we all really know this is not the real reason. But simply an easy excuse.
As Don says, it really is anti-competitive behaviour but dressed up to combat churning.