If we keep going the way we are headed, commissions will one day be completely banned and life insurance advisers will only be permitted to charge fees for service.
For reasons I have outlined numerous times, this is likely to ultimately mean fewer people seek life insurance advice. Most Australians will have only the automatic life insurance cover provided by their superannuation fund (if this is available to them) or direct life insurance cover bought over the phone or internet, a combination of both or - of greater concern - no life insurance cover at all.
How this is considered acceptable in a landscape of rising household debt beggars belief. The ABS Household Income, Wealth and Expenditure Survey (2015-16 - released 30/10/17) found the average amount of household debt has almost doubled in the past 12 years. The International Monetary Fund singled Australia out for having household debt which has risen to 100% of GDP, well ahead of other advanced economies which according to the IMF could spell trouble for our overall financial security.
Simple mathematics tells us that servicing household debt requires income. If that income stream is turned off because something happens to any member of a household who is helping to service the debt, that household is obviously at risk. Life, income protection, TPD and trauma insurance all help to mitigate that risk.
All the research tells us that under-insurance remains a critical issue in Australia. Rice Warner indicated the under-insurance gap is in the order of $1.8 billion:
- $57 million per year for life insurance
- $1,258 million per year for total and permanent disability (TPD) cover
- $260 million per year for income protection
From this we can deduce that many Australians don't like buying life insurance of any kind.
In spite of all the evidence, the rhetoric that continues to go on and on is that risk advisers need to start charging fees. As a veteran of this industry, with 50 years' experience, I'm going to put my hand up and say clients are simply not going to pay fees for risk advice - it's hard enough to get them to pay premiums.
But let's run with the idea for a moment. Let's say a client agrees to pay a fee for an adviser to analyse their life insurance needs and source life insurance products that fulfil those needs. It's fair enough, right? The adviser puts a great deal of time and energy into that part of the process. What is going to happen if, despite all that time and energy, the client doesn't get the cover? In the client's eyes, they will have paid for something that hasn't been delivered. How long before that translates into a complaint, despite it being no fault of the adviser?
Unlike financial planners, in a commission environment, risk advisers are paid for results, not for services rendered. If a risk adviser can't, for whatever reason, get life insurance for a client, the adviser doesn't get paid. Or put another way, the client doesn't pay unless the adviser gets the insurance in place. It's hard to imagine a fairer outcome for consumers than that.
All that said, I'm optimistic about 2018. The Life Insurance Framework (LIF) is now in place and the world has not come to an end. Yes, we do face more challenges this year, FASEA being just one of them, but I believe we can successfully navigate those challenges - just as we have successfully navigated many other changes and challenges in the evolution of our profession.
It is time, however, for the powers-that-be to truly look at our landscape from a consumer perspective. If they do, then life insurance advice will live on.