Trowbridge report a starting point

The Trowbridge Report (the Report) into life insurance advice is a starting point for modeling the likely outcomes of dramatic changes to life insurance remuneration and the impact on consumers, advisers and advice businesses.

“Clearly there needed to be a review of the life insurance industry and change is necessary in order to have a healthy industry going forward,” said Synchron Director, Don Trapnell.  “The Report marks a starting point, however before we knee-jerk to implement such wholesale changes, we must ensure they actually do benefit consumers and are meaningful.”

Mr Trapnell said what needs to happen next is a strict modeling process that demonstrates to government and regulators the real effect of the changes on consumers, advisers and small advice businesses. “We believe the Report missed a golden opportunity to conduct this modeling before handing down the recommendations.”

Synchron is also concerned that as they stand, the recommendations will mean small business advisers will earn less than the cost of production, forcing them out of business and a whole range of people from their businesses onto the job market. “The Report suggests that businesses will recoup losses in a few years’ time. Small businesses simply cannot withstand losses for that period of time and would be forced to shed staff and cut costs simply to survive. If the recommendations are implemented, we estimate that job losses, both direct and indirect, suffered by Synchron practices alone would number around 500 people.”

Consumers are also likely to be hurt by the recommendations, according to Mr Trapnell. “The changes will require insurers to conduct extensive systems reviews and that comes at a cost. Therefore, we do not believe insurers will be able to reduce premiums. As suggested by the Report, advisers will be able to make up the commission lost by charging the client a fee – this of course means there will be an increase in the cost of insurance advice for consumers. It’s difficult to see how this could possibly make consumers better off.”

Mr Trapnell suggests there is an opportunity for insurers to innovate on products – however, it is a longer-term solution with a long lead time. “We now have an ageing population, and we see government suggesting we may need to be working longer – unfortunately and to the detriment of consumers, many products available just do not suit the changing lifestyles of Australians in their current form.”

However, Mr Trapnell says he is pleased that the Report did not go so far as to recommend a blanket ban on commissions, as was the case in The Netherlands.

Mr Trapnell and Synchron independent chair, Michael Harrison will visit the United Kingdom (UK) this week to study the effects of the Retail Distribution Review (RDR) in the UK.