Synchron has responded positively to the Government’s Life Insurance Framework (the Framework) handed down today, saying it removes uncertainty from the industry.
“The Assistant Treasurer has acted decisively,” said Synchron Director, Don Trapnell. “We are also pleased that he acted in consultation with interested parties and actively sought input from licensees, advisers, industry associations, consumer groups, life insurance companies and the like so that the outcome is something we can all move forward with.”
Mr Trapnell said the Framework is nowhere near as bad as it could have been for advisers or for consumers. “In fact we believe it is a very balanced approach,” he said. “We have a long lead time. There is six months before any change whatsoever is required, a further 18 months before the next change and then another 12 months after that before the final change.”
He said this will allow advisers to adjust their business models and build a bank of hybrid-style renewal commissions to help offset the lowering of new business commissions. “We believe the strong lobbying of the Association of Financial Advisers (AFA) on behalf of advisers helped ensure that more radical elements of the Trowbridge recommendations did not see the light of day and helped common sense prevail.”
However, Mr Trapnell also said the measures announced today do not address all of the ills of the industry. “The elephant in the room is the love affair both advisers and insurers have with yearly renewable premium rates. As long as these exist, there will be movement of clients between life insurance companies for short-term gain.”
Mr Trapnell said a recent study tour of the UK, which he undertook with Synchron independent chair, Michael Harrison, helped to identify other remuneration models and product shapes that do not rely on yearly renewable structures.
“The biggest problem with yearly renewable structures is affordability for the consumer and sustainability for life insurance companies,” he said. “We believe we will help solve this problem with the new product design and shape we have put out to tender.”
Mr Trapnell said a new product shape will help address sustainability issues, perceived issues of churn, affordability and remuneration structures. “We believe it will help ensure advisers are adequately remunerated for the efforts involved in placing business on the books and should also encourage new advisers to join the industry.”
Source: Synchron
