Holistic advisers are shying away from writing more risk, meaning that a mere 493 advisers wrote half of all life policies this year. But what’s behind this trend that could potentially lead to huge underinsurance among Australians?
The 493 figure comes from Adviser Ratings data from September, while only 6373 advisers wrote a policy in the first half of 2023.
Research currently being conducted by Marc Fabris, the founder of Risk Hub, shows that the main reason is the viability of writing risk. “A close second is compliance,” he says.
“Then not too far behind are the difficulties of pre-assessments and underwriting of policies.”
Fabris adds that the cap on life insurance commissions – 60 per cent on the initial premium and 20 per cent thereafter – has weakened the affordability of risk advice and driven advisers away.
Charging an extra fee can be hard to justify despite the amount of work that goes into providing the advice, he says.
Martin Le Tissier, a financial planner from Purely Finance, says risk advice is only marginally profitable compared to investment and superannuation advice.
“This is partly due to the time-consuming nature of this advice,” Le Tissier says.
“By comparison, the implementation of investment business is usually very straightforward forward, simple and time frames are easily guesstimated.”
He adds that risk advice can be only halfway through the journey by the time the application form is taken.
“Underwriting, dealing with amended terms, following up payment arrangements/cancelling old covers and so on are often tied to unknowns and can take hours,” Le Tissier says.
Fabris also believes risk advice is time-consuming, noting that large insurers can be slow in processing manual pre-assessments and doctors can be sluggish in providing medical reports.
According to Jake Wilkins, a financial adviser at Jake Wilkins Financial Planning, providing risk advice has become a specialty knowledge area in recent years.
“The products have drastically changed and there have been product mergers, exits and new providers entering the market,” Wilkins says.
“Advisers have typically taken the salesman approach and received insurance commissions on the sale of the product.”
However, Wilkins says it’s not like selling a car or gym membership.
“We can ‘make the sale’ in the meeting, but we then need to produce a lengthy advice document with hours of background research, comparisons and pre-assessments to be able to legally make the recommendation,” Wilkins says.
Wilkins adds that even with a thorough pre-assessment, there’s the risk that during the application process, the cover could be declined or penalised with loadings or exclusions which is entirely out of an adviser’s control.
Le Tissier agrees. “A deal can very likely fall through after 90 per cent of the work is done and prospective clients are unwilling to guarantee advice fees, no longer collectable as commissions, that would have followed a successful deal,” he says.
Anthony Campbell, financial planner and risk insurance specialist for Business Risk Solutions, believes about 40-60 per cent of applications don’t go ahead. “That means typical advisers only get paid on every second application they submit,” he says.
“Every decline means many hours of work done preparing advice, meeting clients, following up suspense, having challenging conversations about health issues and then not getting paid.”
Campbell notes that the number of health issues in the general population has increased, creating a twofold hurdle for advisers.
“Firstly, it means fewer applications being accepted at standard rates and more applications being declined or offered with amended conditions,” he says.
Secondly, it requires advisers to have uncomfortable conversations with clients.
“Unfortunately, that creates another reluctance because some – men in particular – don’t want to be asking a client about their excess weight, suicide attempt, sexually transmitted diseases, complicated pregnancies and the medications they’re on,” Campbell says.
“It’s a lot easier to talk to someone about their monetary or lifestyle goals, even why their superannuation has gone backwards than it is to talk about their life expectancy or reasons why their cover was declined or accepted with a loading.”
Le Tissier adds that risk advice is complex and no two deals are alike. “It is considered necessary but a ‘grudge purchase’ by many. As a result, it often doesn’t come with the good feelings of doing something positive to improve the client’s financial position.”
He says about 75 per cent of his firm’s revenue is generated from personal insurance advice. This includes advice fees, upfront and trail commissions.
“To remain a viable business in the environment of reducing commissions, we have introduced up-front advice fees for risk advice,” he says.
“We still accept full commissions (hybrid 66/22 per cent) on insurance business as an implementation fee and upfront fees range from just under $2000 for a single person to just under $3000 for a couple on the same SOA [Statement of Advice].”
Wilkins says he has started to charge a fixed fee for insurance advice.
“The fee is partially refundable if, during the research process, we determine that no insurer is willing to take on the client,” Wilkins says.
“However, it ensures that we get paid for all the work we do and that’s a big risk that many advisers are facing.”
Campbell, who switched to pure risk advice almost three years ago, says he doesn’t prepare an SOA until he’s 90 per cent sure it will lead to a completed application.
