In a recent IFA article, “Absent Vision for the Future – insurance is an industry in run-off” so many great points were made:

  • Chronic underinsurance problem
  • 36% drop in lives insured in Superannuation
  • 5,000 sets of beneficiaries who missed out on an estimated $665m in payments in the 22 & 23 years alone, because no insurance was recommended!

The article goes on and “points the bone” at misguided Govt intervention in pricing frameworks – policed by APRA – driving the cost of Insurance through the roof, and into the unaffordable territory for many Australians.

The “Perfect Storm” for the Life Insurance industry in Australia was then compounded by commission caps, making the cost of advice for Advisers previously working hard in this space, “A Bridge Too Far”. Simply put, Advisers cannot cover the cost of advice …. 2 meetings with the client, the cost of a SOA, making sure all medical requirements, Compliance and Administration boxes are ticked for 60% of a $1,500 premium! (as an example)

I have spoken offline to 2 different Life Companies Executives and asked how they are travelling, and both gave answers along the lines that inflows are drastically down, while claims remain at similar levels to previous years – but they remain “optimistic”.

I then asked if they thought increasing commission would do anything to address the advice gap. Both said words to the effect that it was around No 1 on their “wish list”, however their comment was this is not on any Political or Regulatory agenda as the decision to allow the commission system to exist at all, had only just been made and there is no point pushing this forward.

I am not advocating to return to the old Commission system, however increasing upfront to 80% would in my view make a lot more Advisers pay a lot more attention to opportunities in recommending Risk Insurance. This in turn would increase inflows to Life Companies, which would in turn cover a lot more Australians.

Life Companies are doing it tough. The under-Insurance problem becomes worse, which in the end will put pressure on then Social Security system and put a lot of Australians in a very dire position.

Jones answer to the advice gap, is to introduce a “Qualified Adviser” (or whatever they call this in the end) into the fray, contracted or employed by the Super Funds.

What problems will this new kind of adviser bring when we already have 15,000 qualified people – who at present cant afford to visit “Mr and Mrs average Australian” and address their Risk Insurance needs on the existing commission structure.

The opening heading in the Article I refer to above was Blind Freddy can see. Why can’t they see?

Kindly supplied by:

Rob McCann
Director and CEO
Templestone Financial Services AFSL 523831