Advice firms are being challenged because an attraction problem is hindering insurance participation, according to Avanzare Group managing director Jaime Johns.
“When insurance splits continuously reduce and the cost to produce financial advice is going up, [people are] not getting the same financial reward for putting [policies] in place [at the point of claim],” she said at the Professional Planner Licensee Summit last week.
“At the end of the day, there’s a risk and reward problem. What is that going to attract people to give advice if they’re not going to be rewarded?”
Johns cited the income protection insurance changes a couple of years ago – which changed the caps on policies and introduced stricter definitions of disabilities – as a “real tipping point”.
“I noticed that a lot of advisers said, ‘That’s it, I’m done. I’m going to refer out now because it’s just too hard to get my head around all these policies’. Then we have a pathway problem.”
She added the experience pathway, which is now in Parliament after consultation of the draft legislation closed, will not sufficiently close the underinsurance gap.
“A year is not enough time, we do need to get [potential advisers and planners] in much earlier,” Johns said.
“We can own this and we can lead it and not wait for it to be wrapped in [the Quality of Advice Review], because there’s a lot of other great ways we can build a foundation on.”
One example, Johns said, is technology and digital advice.
Interest in digital advice has recently peaked, according to research released by AMP and KPMG in May; however, consumer take-up has yet to reach the same level.
Despite this, Johns believes digital advice is “a fantastic opportunity for insurance businesses that will provide more efficiency for the advice process and support staff”.
“It’s going to continue to evolve,” she said. “I would say be open to having your advisers use the innovation.”
Positive steps forward
Council of Australian Life Insurers CEO Christine Cupitt said she was “really heartened” by the federal government’s commitment to stream one of the legislative response to the QAR.
Under stream one, the government will focus on red tape reduction.
“This is absolutely something that, from an insurer perspective, we want to get behind,” she said.
“We want [insurance businesses] to be able to run [as efficiently as] possible and provide more support to more clients.”
Cupitt added that she was also pleased by the government’s intention to expand intrafund advice.
“They are a critical piece in providing life insurance advice to the members of the funds,” she said.
“We really would like to see that clarification of what interfund advice means to include advice on life insurance.”
Cupitt explained CALI is looking forward to stream three, which will explore new channels for advice.
She said it will make them think “more about insurance as non-relevant providers and how they can innovate [and] provide services directly to customers, [and] also complement the offering of financial advisers”.
AIA Australia general manager of retail distribution Craig Parker said the company hopes implementing the QAR recommendations will drive efficiency for risk advice.
“Around 70 per cent of [advisers’] time is [currently] focused on servicing their existing customers,” he said, adding that insurance companies are “way behind” where they should be regarding data that would help.
He urged companies to better utilise data provided to advisers, which they use to service their customers. It can also give insurance companies a greater understanding of the customers’ needs.
No adviser is attracted to risk insurance simply because its not profitable due to the low 60% commission which doesn’t cover the cost of advice and is at risk over a 2 year period of being paid back.