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”.
An excellent comment from Jeremy Wright. The government and their bureaucrats did this, and the insurance companies went along with it.
Prior to 1990, life advisers simply provided a range of quotes & the client decided what cover they wanted. Time-wasting SoAs simply didn’t exist & we wrote a serious amount of business. Plus there were additional incentives were provided to advisers for business written. Ever since then, business levels plunged.
It’s VERY OBVIOUS what has to be done. Life Offices need to start paying their sales force a liveable income in order to write business. Back in the early 1990s life agents were paid decently & were even given incentives to do so. Not unlike how UniSuper offers to pay all of their intrafund advisers $40,000 pa bonuses on top of their normal salaries. It was also possible to be paid to write life business within super funds. Making that illegal has also caused a massive servicing disaster for young families. Given it costs the average risk adviser between $100k to $150k to operate their office, before they pay wages to anyone, remuneration that adequately covers business costs needs to be addressed. The recent QAR legislation was a disgrace & will result in a further fall in life insurance production. The current “system”, including ANNUAL fee renewal consent forms MUST END IMMEDIATELY. The ratio of 3 life policy cancellations for every 1 policy written is completely unsustainable & is just as dangerous for families as it is in not having a Rare Earths policy for Australia. Both sides of Parliament should hang their heads in shame that the Consumer Activists (taxpayer-funded lawyers) have shamed politicians against writing life insurance business.
There is in every Business, the main consideration of supply and demand to determine whether it is viable to start up or continue.
Life Insurance has always been a huge market opportunity, though unlike Investment advice, it is not something most people spend much time thinking about or pursuing and it has always been a grudge purchase.
In the 37 years I have been helping clients with their Insurance needs, there has only been a handful of people who said no to attaining Insurance cover once we had provided them with clear reasonings as to why they needed to protect their personal and Business needs and assets.
So, the supply and demand issue has always been a brilliant positive.
Where it has fallen down, is the involvement of inept Government “improvements,” pushed through by Regulators, Education lobbyists, Compliance teams and Legal eagles who decided to take, what is a very, very simple Business model and turn it into a maze of complexity, with restrictive conditions that no other Industry in the world has to comply with and after finishing their masterpiece and rolling it out to the market, were puzzled when thousands of experienced Advisers who had warned they would not accept these outrageous and ill thought out restriction of trade imposts and who made it very clear, they would cease working in the risk space unless many of the insane conditions were revised, then had the temerity to actually follow through with their threats.
This slow train crash was clear and present from the beginning, when true New Business started to reduce and Advisers started to exit the Life Insurance space.
For 10 years, I and other experienced Practitioners who ran our own Businesses, articulated what the REAL issues were and how to quickly remedy ALL actual and perceived faults in a manner that was in the best interest for everyone except the tiny percentage of people who put their OWN interests first.
An army of self-serving sycophants paraded the corridors of Canberra making up stories that turned a mole hill into a mountain, though with their guidance and wisdom, assured ministers who had zero knowledge of the Life Insurance Industry and how it actually worked, were able to convince the Governments of the day, that only magic potions of more and more and more Regulations and rules that only they understood, would be the catalyst of all that is good.
People who were at the Coal face, clearly understood the real issues and spoke out, not only about the incoherent, opaque Legalize and requirements that had ZERO common sense and were totally unworkable, were ignored and drowned out by the deafening noise of theoretical experts who seemed to come from out of the woodwork, espousing their views and VESTED interest groups who knew better, though chose to feather their own nests at the expense of ALL Australians.
I have written many thousands of words, made many submissions and NOT ONE person from the multitudes of interested parties, has been able to refute what I have said in my arguments against the current regime of unworkable road blocks, or my path forward to fix the issues.
Instead they do, what is always the easiest path and ignore any suggestion that does not suit their own agendas.
The way to fix the Life Insurance Industry, has ALWAYS been the same, as it was 10 years ago when this sorry saga reared it’s head, which has been to make the provision of Life Insurance Advice a standalone Industry, that focuses on Life Insurance and makes it attractive enough for new and already exited people to come into the Industry, without the current maze of doom that exists, that has been a 100% success in driving people away.
So, for all you vested interest groups who were successful in pushing through your own agendas, how proud are you with the end result of ZERO new risk Advisers entering the Industry via the University pathway, Insurance premiums doubling for loyal customers, thousands of experienced Advisers who were doing a great job helping Australians to attain advice and cover, now gone, or who are no longer providing risk advice due to your, “Great leap forward.”
What has been transparent, is that even today, none of you have come up with the solution.
Where are the Life Companies in this debate? They are silent Jeremy. Why?