The life insurance industry in Australia is in trouble

ASIC is nothing but a secret tax collector. In net terms no funding is provided at all, rather ASIC provides a windfall gain to consolidated revenue aparently around $600 million per annum. And this before the new Industry Funding impost. Every commercial enterprise is faced with conflict of interest, their own interest and the interest of customers and this is a fact of free enterprise that must be managed not regulated into oblivion.

Thank you Mervin.

I agree with much that you have said in your article with the exception of your comments on commissions.

I have been nominating Hybrid Commission on all cases since early 2000's and rebating 25% on large submissions.

I believe somewhere between 60%-70% (plus GST) with a 20% +GST renewal is realistic and commercially viable for a life risk practice - what are the life offices doing with the commission savings and the likely improved policy retention outcomes?

Well said, Mervyn.

What a calamity! The ruination of a vibrant, socially and economically vital industry by government appointed regulators, who seemingly (obviously?) have no regard for the essential role of life and disability insurance in our society. And who are oblivious to the well-established (200 years in the making) fact that life insurance is sold, not bought. And certainly not bought having to pay someone a fee for having it sold to them.

Regulators - and, may I say, industry bodies and even the insurers themselves - seem to have lost sight of the fact that insurance sales people have historically been paid commission as a fee for procuring the business for the insurer. What is wrong with that? Was Hayne not paid for his services? Were not the lawyers who revelled in their lucrative roles in the RC? Isn't everyone who works for a living?

Hopefully, insurers will wake up, industry bodies will wake up, and join forces in pursuit of common sense, and possibly salvage what is left of a once magnificent, socially just and necessary industry. Perhaps adopting as their mantra that of the original AMP Society: "Founded for the benefit of the widows and orphans of Sydney Town."

Well written article Mervyn, the best summation of what is happening to the industry that I have to date read.

I also agree with Michael Mooney's comments on hybrid commissions. I too have used the hybrid model since 1995 and it is a sound way to build a business, as you are paid enough ongoing to be able to proactively service your clients. You may sometimes take a hit in year one, but after around five to seven years you will have received more remuneration overall compared to the now gone upfront model. The banning of upfront commissions will long term cost the life offices more.

I disagree with some points by Michael Mooney, but only in so far as the rate of commission needs to be higher, set at 80% + GST, because smaller sized premiums will deliver commission barely sufficient to cover off the Compliance costs let alone advice costs. This will be particularly worse for Specialist Risk advisers.

I do agree however that if this were part of a more holistic advice service (Fees) then the 60% - 70% level is sustainable. there are of course more issues with Life insurance other than the obvious, years of poor management by Banks have seen life offices scrambling for market share by reducing premiums, and providing unsustainable terms and conditions in (specifically) Income protection business. this will all end in tears as the Life offices struggle to remain profitable, forcing premiums up and as a consequence higher lapse rates.

because of the "Best Interest" duty, any reintroduction of older style IP polices with split benefit periods (Sickness Vs Accident) is fraught, the first claimant who wanted change based on price and feels duded based on terms and benefits will end up in court with the adviser on a hiding to nothing. to paraphrase Stan Laurel " this is another fine mess you've gotten us into..."

Once again votes and ideology have interfered in a process which should be more logical and thoughtful.

All of these well thought-out comments come from those who know what they're doing. As Mervyn said, companies pay retainers to lawyers yet what sort of compliance and reporting issues do they face in this practice? As well, their fees for winning litigation cases are massively excessive, but what best interest duty must they report and to whom?

Attracting new advisers into our industry, especially those who want to specialise in risk, seems now unlikely. The level of compliance, the repetitious disclosures and massive SOAs which no one reads and even fewer understand, is simply beyond the pale. All of this has effectively killed off an industry which has held an honourable place and provided a reasonable living for thousands of advisers in our society for over 150 years. What a sad and shameful mess!

When I first entered the life insurance industry in 1970, it was explained to me that part of the commission which I received was for the work that I must do for the client, inclusive of regular reviews and claims advocacy, when applicable. The balance was for "finding the client", in the first place.

Those of us who have been fortunate enough to develop mature Risk Practices may no longer need to "find" our clients, but those younger advisers, aspiring to develop a successful Specialist Risk Practice, must still overcome that basic obstacle. How are they to be reimbursed for investing the requisite time and energy to develop a Risk Practice in the first instance?

Not only are some practitioners being squeezed out, there remains minimal incentive to start up!