There is a movement bubbling away beneath the surface of the life insurance advice industry.
Much like the movement led by the mortgage broking industry earlier in the year – the result of which ended in policy makers first accepting and then rejecting the Hayne royal commission’s recommendation to ban trailing commissions paid by lenders – life and risk insurance advisers are organising themselves to shape policy outcomes.
Led by former Labor MP, the Hon Bernie Ripoll, the so called ‘Father of FoFA’ for his role in leading the inquiry which resulted in the landmark Future of Financial Advice reforms, along with leaders from the peak industry associations, the Association of Financial Advisers and the Financial Planning Association, this life insurance movement was formally set in motion at a roundtable discussion in Melbourne in May and facilitated by insurer AIA Australia.
Ripoll, alongside the FPA’s Dante De Gori and the AFA’s Phil Kewin, were joined by industry participants – many with decades of advice experience, some new to the industry – to discuss the impact of quality advice on consumer outcomes and the future of the life insurance industry.
“We are very much at a critical time for the sector to focus on better consumer outcomes and to work together on sustainability,” Ripoll said, encouraging participants to share their perspectives during the discussion.
The May gathering in Melbourne was the first in a series of discussions planned this year, initiated by AIA and facilitated by Professional Planner. The series will culminate in the AIA Professional Planner Life Risk Summit to be held later this year, involving industry, government, consumer stakeholders and experts from other markets that have experienced similar reforms.
“If we put better consumer outcomes first, that can only be good for people needing insurance, as well as for the sector,” Ripoll said.
Commissioner Kenneth Hayne in his final report following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, recommended commissions from the sale of life insurance should be reduced to zero unless an ASIC review, scheduled to take place in 2021, found “clear justification” for their continuation.
“Disallowing commissions will mean fewer people are getting insurance because they’re not getting the right advice, which will have a detrimental impact on Australians and their families when they need it most. It will then fall to government to support people and as a consequence, the community as a whole,” AIA chief executive Damien Mu said.
All the participants around the table agreed the life insurance sector needed a united voice to make a strong case against unnecessary changes to commissions that will ultimately result in less insurance for people who need it.
“Blaming commissions for the problems in the sector is too often regarded as the simple remedy for poor practices, without clarifying how proper insurance advice is remunerated or how consumers want to pay for advice and products,” Ripoll said.
“While it has been too easy to lump together all commissions, it’s clear that policy makers also consider that not all commissions are bad or all conflicted.”
Ripoll’s view is that now is the time for the insurance industry to start working together with stakeholders and the community at large to make a case for insurance commissions, as the mortgage broking industry did, which convinced both sides of politics that commissions can serve a purpose in helping to promote competition and benefit customers.
“There is great value in advice in insurance which can sometimes be difficult to articulate and make telling a good story of the benefits more difficult. There are absolutely some misunderstandings of the nuances in the different segments of the insurance sector and the value this brings to consumers and families and society more broadly,” Ripoll commented.
The discussions this year will look to highlight a number of key issues including the correlation between insurance advice and positive insurance claim outcomes, the impact to date of the Life Insurance Framework rules, as well as learnings from countries outside of Australia where policy changes have resulted in disastrous consequences for consumers and the sector. The summit later in the year will look to engage with consumer stakeholders and draw on case studies where advice has benefited customer outcomes.
Associations come together
The FPA’s Dante De Gori and the AFA’s Phil Kewin confirmed during the Melbourne meeting that the two peak advice associations, representing more than 15,000 members, would join forces to present a united voice on the issue should the industry be called on to put policy positions forward.
“We would like to come out with a single voice and position,” De Gori announced.
“There are a lot of things out of our control, including the royal commission recommendations and some parts of the political process. What we can control is what we do, our actions and the decisions we make. There is absolutely an opportunity for us to talk about what we can do and how we represent our views,” he said.
“It’s not about just defending our patch. It’s about what the future of financial advice looks like in particular how insurance can be affordably delivered in the future,” De Gori added.
“We’re at a point now that when a commission is paid it is deemed an adviser is acting for a product issuer, acting for the insurer. That’s not the case, and one of the perceptions in my view we need to change, because commissions are seen to be an incentive paid by the insurer to write their products and there is a lack of understanding that it’s a remuneration model and it’s the only way we have to get affordable specialist insurance advice,” Kewin said.
Kewin and AIA’s Mu highlighted that one of the outcomes of the LIF has been a movement towards a levelling of commissions to remove any conflicts of interest, which was one of the main recommendations in the industry’s Trowbridge Report.
“A lot of the good work has already been done by LIF,” Mu said.
LIF was introduced under former financial services minister the Hon. Kelly O’Dwyer, requiring a grandfathering of all remuneration arrangements entered into before January 1, 2018; a phased reduction to a maximum of 60 per cent upfront/20 per cent ongoing by January 1 2020; a two-year clawback period for upfront commissions; and a ban on volume-based payments. The legislation also called for the development of a Life Insurance Code of Practice and a subsequent ASIC review of the changes in 2021.
“There is actually a good tension between the advisers and the product providers and I’m not sure the public really see that,” said Adrian Emery, principle of AE Consulting, and a former insurance executive who’s recently returned to Australia after working for insurance providers including Friends Provident International and Aviva in the UK.
A single voice: Darren Conway, Stedfast; Ross Hennig, Pareto – Lakeside; Gavin Kotkis, Synchron; Mark Everingham, Personal Risk Professionals; Chris MacKenzie, MBS Insurance; Kris Mason, MBS Insurance; Matt Heine, Netwealth; Wayne Handley, Bombora; Helen Blackford, millennium3; Paul Grubb, DPM; Glenn Kerr, Bombora; Philip Kewin, AFA; Dante De Gori, FPA; Hon Bernie Ripoll; Alan Caputo, iSelect.
One of the outcomes in the UK and in other countries where the payment of commissions has been disallowed has been the disappearance of quality stand-alone specialist insurance advice businesses, Emery pointed out.
“Similar to the mortgage broking industry, advisers in the insurance industry hold the manufacturers accountable to make sure there is competition, innovation and value for customers,” Mu said.
“Access to quality advice is critical for better outcomes for Australians. If we do not have a sustainable advice industry, Australians can’t get access to quality advice –this is why the mortgage broking example was successful,” Mu continued.
“If you take that sustainability away, you actually create the conflict between the manufacturer and distribution sitting together, and that advice is then potentially perceived as conflicted,” he said.
The crisis ‘is here now’
The issue of sustainability, with specialist insurance and advice businesses facing increasing pressures in the current policy environment, was a hotly debated topic around the table.
“The affordability and accessibility crisis everyone is saying is coming, is here now,” Helen Blackford, Millennium 3’s chief executive, said.
“There is no lack of people seeking advice, but for a number of reasons, from decline in business valuations, rising costs to provide advice, education requirements – an advisers’ ability to provide advice has diminished.
“There is now a huge cost gap between the cost of providing advice and what the consumer is willing to pay. If the current model is under threat, we will see more people leaving and accessibility [to insurance advice] will become more of a problem,” she said.
Kewin summed up the challenges facing advisers in the current environment, from the trust deficit thanks to the highly publicised Hayne royal commission, to the impact of new standards already in play in LIF, to the new exam and degree qualification required by the Financial Adviser Standards and Ethics Authority, as well as increasing scrutiny from regulators as being a “perfect storm” of factors buffeting the advice industry.
“The average adviser is disillusioned with what’s going on to the point of some needing mental health assistance and leaving the industry due to stress related illness. I’m seeing it all over the place,” said Gavin Kotkis, a Certified Financial Planner and a representative of Lifespan based in Perth, Western Australia.
Despite all the changes in the industry, the demand for specialist insurance advice has never been so strong, practitioners around the table agreed, many of whom have different business models, from standalone specialist advice businesses, to specialist advisers within advice and accounting practices.
No shortage of clients
“I’ve never seen the environment for advice better,” Wayne Handley, who has more than 30 years-experience as a risk advice specialist and who is managing director of Melbourne-based practice, Bombora Advice.
“The opportunity for professional risk advice is abundant, therefore the need has never been greater. For some reason, more than I’ve ever seen, people are willing to talk about life insurance,” he said. Many experienced advisers around the table agreed that the large latent demand for advice has never been so apparent.
Working alongside other professional services firms where clients are referred to an insurance specialist by their trusted adviser or broker is where insurance advice is in highest demand; a model that’s more prevalent in Canada and the United States but which is still emerging here locally, Handley noted.
“When we’re sitting in front of clients now, when we are working with another professional services firm that’s highly engaged in the importance of people getting professional advice, which includes specialised insurance advice, these clients are preconditioned to having the conversation rather than perhaps what may have been more of a sales conversation in the past,” Handley describes, adding that it’s this movement towards specialisation that’s helping define insurance advice as a profession.
“Absolutely, we are specialists,” Handley said. “There’s far more respect for territories [between insurance advisers and other professional services firms], we don’t share brokerage anymore, we can’t afford to so that’s off the table…. [Separating remuneration] takes away that cringe factor. We can share value in building businesses together, so that’s where the insurance adviser is heading,” he said.
“In the same way when I have a medical condition, I know the doctor I go to specialises. The consumer in this country should know they’re sitting in front of an insurance specialist as opposed to a part-time insurance adviser who will have nowhere near the experience or the capacity to give the advice or get the claim paid properly,” Handley said.
Separate and define
Separating and redefining the insurance adviser label as distinct from a wealth adviser could be a pathway for the insurance industry to explore given the unique challenges that specialist insurance advisers face, as many around the table agreed.
“Fee for service works if it’s for holistic advice offerings, but for insurance specialist models like ours, where our work is derived out of professional services firms doing insurance audits on their clients to ensure they’re going to have a problem, it doesn’t work. If there was a fee to provide advice for these clients then it just wouldn’t happen,” Chris MacKenzie, a partner with MBS Insurance Group, described.
“I think fee for service can work in a lot of the models, it doesn’t work in the specialised space, but I think what’s happening is we’re getting bundled up with holistic planning when they’re separate services,” Mackenzie said.
“We get a lot of referral business, but I feel like the ‘adviser’ brand has been tarnished… why aren’t we seen as brokers who represent the customer? Because that’s what we do,” Darren Conway a founder and director of specialist life insurance adviser, Steadfast Life, commented.
While referrals for specialist insurance advisers are strong, an advisers’ ability to grow their client bases remains a challenge, the group agreed.
“While the new customer experience hasn’t really changed much, the amount of work we’ve had to do on reviews, amendments and client management is higher than I’ve ever seen,” Mark Everingham a Certified Financial Planner, Life Risk Specialist and managing director of Queensland-based Personal Risk Professionals, said.
Australians are the focus
Since the introduction of LIF, Everingham said he’s noticed policy definition changes and changes to premium conditions that have led to more clients seeking advice to ensure they’re adequately covered.
“I’m finding clients being strained by premium changes, being strained by changes in their super funds and they are looking for advice… from that perspective we are busier than ever, not only bringing on new clients but also managing existing ones,” he said.
“Fewer people are getting insurance because they’re not getting the right advice and the outcome will be a detrimental impact on Australians and their families when they need it most,” AIA’s Mu commented.
“We need to support risk advisers. The real problem or issue we need to solve for is growing a quality risk advice industry to serve and meet the needs of Australians.”
“This sector provides what I would describe as an essential service, protecting people and their livelihoods and their assets,” Ripoll concluded.
“Like me, you’ve probably seen a lifetime’s worth of reviews, commissions, hearings, Senate and House reports and I am sure there will be more scrutiny to come, but our job as an industry is to constructively contribute and help shape the policy direction, always putting the consumer and better outcomes for Australians at the heart of the conversation,” Ripoll said.