Cast your mind back to 2017. The life insurance space was flourishing. The average Australian had relatively easy access to a financial adviser who could provide affordable advice. Not anymore.
The life insurance advice sector has taken some hits over the last few years. Shrinking in numbers, financially flawed and inherently complex, life insurance advice is hard to find and increasing in cost. Those who do specialise in life insurance are either passionate in the area or have little choice because it’s what they know best.
In 2017, The Life Insurance Framework introduced a cap of 60 percent upfront commissions and 20 percent trailing commissions, with a two-year clawback. The purpose of the commission cap was to prevent churning of insurance product.
The life insurance sector has attributed the downfall of risk advice due to the caps on commissions. The sharp reduction has seen a significant decrease in the number of advisers wanting to specialise in life insurance.
As the number of advisers goes down, the cost of delivering advice goes up and becomes much more unaffordable for the average Australian.
WT Financial Group’s head of advice Jack Standing says the only way to increase the number of advisers providing life insurance advice quickly is to change the commission percentage.
“That’s the biggest lever you could pull to change the dynamic,” he tells Professional Planner.
But Standing also suggests that advisers “need to get out of the dynamic that it’s a commission only service” and accept that they can and should charge for the service they provide.
Data from Adviser Ratings last year showed less than 500 advisers were writing half of life policies.
Standing says the lack of advisers writing risk is a serious concern.
“We’ve never been more underinsured in 50 years. It’s a massive societal issue.”
The complexity of delivering life insurance on top of the expense has decreased the pool of advisers giving risk advice.
Zurich head of retail Jacqui Lennon expresses frustration that life insurance advisers essentially need to be “medical experts” and the business of risk advice is inherently complex.
“How do we create clarity and confidence around insurance so that advisers don’t feel like they need to have the best of every single definition in a policy to be able to confidently recommend to a consumer?” Lennon says.
The level of anxiety around the life insurance advice space adds another dimension to its complexity and poses the question of how life insurance advisers should tackle this issue.
Personal Risk Professionals managing director Mark Everingham concedes that even for specialist firms, that by nature of the industry, it is inherently complex. He explains that risk advice is complex “from a wording point of view”.
“You’ve got dozens of different policies that have different wordings to them,” Everingham says.
“Trying to align those to the individual needs of your client is complex.”
The complexity somewhat benefits the existing life insurance advisers as financial planning firms increasingly prefer to avoid giving life insurance advice and instead use a specialist so that they can focus on the areas that they are experts in.
A safe place
But firms that do specialise in life insurance advice and have weathered the challenges with the current commission caps are experiencing greater demand than ever.
Orbital Group director and life insurance advice specialist Nick Fanto says that it was very hard to get the business off the ground, having started from scratch.
“It was a difficult journey, 100 per cent,” Fanto says. “I’ve been down to my last 50 bucks. I remember vividly.”
The business mostly works with other advisers who don’t deliver life insurance advice themselves and refer their clients and so build a network through referrals.
“Specialising has helped with our success,” Fanto says. “We are a safe place for those holistic advisers who can refer clients.”
Personal Risk Professionals uses the same model, with most of its business coming from other financial professionals.
Tech help
The introduction of technology to speed up the advice process can only do so much. It is a slow moving and complicated process which deters many advisers from delivering life insurance advice.
Most companies delivering risk advice have now switched from paper forms to online for speed and accuracy, but it is not effective enough to attract new advisers.
Fanto says that, despite being fully online, “the process is clunky and time-consuming”. He intends to introduce automation to help improve their services.
“Insurance companies are all working on efficiencies.”
Despite businesses focusing on speeding up the process of delivering life insurance advice and making technological improvements, it is not turning the dial fast enough to beat the decrease in advisers wanting to specialise in life insurance.
No new recruits
New advisers are deterred from the life insurance space because the processes themselves are more difficult and more expensive than giving standard investment advice.
“Several young and hungry advisers have said I want to work with you because of the culture but I don’t want to be pigeonholed at this point in my career,” Fanto says.
Because of this, Fanto has committed to bringing in interested people and developing from within the business.
The lack of young advisers wanting to go into life insurance will cause an even greater shortage in the future if nothing is rectified.
Lennon believes that there will not be much progress made “until people get a real sense of what’s good and what’s bad”.
Most advisers delivering life insurance today are experienced specialists with confidence in their value proposition and can safely afford to increase their fees.
“Those that are experienced, they’re doing it on scale,” says Standing.
These advisers have more efficient processes and existing relationships with insurers. New people getting into the industry don’t have these established advantages and will struggle to create them.
This is partly why the life insurance specialist firms prefer to develop from within. Everingham supports the model of growing young hires into successful specialist advisers.
“Our general manager and one of our advisers have been with us for nine years. They both joined as customer service officers.”
This appears to be the best way to recruit new talent, with most new advisers staying away from the insurance sector.
To change this, Everingham believes that it is a responsibility of the sector itself to show that “there really is a career path available to someone if they want to come and enter into the life insurance sector”.
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