The Royal Commission: What's next for insurance?

We will definitely stop advising on life insurance if commissions are banned altogether. That said it is untenable now. Underwriting processes are lengthy and completion rates are falling. There is little appetite (rom clients) for fee based life insurance advice especially when the outcome is so uncertain.

We will instead focus on those things we can control and wait for the few years of disaster to pass and for government and regulator to realise the error of their over zealous ways. Aside from risk specialist businesses going to the wall, the big loser will be the consumer, closely followed by life companies forced to down size and merge to stay relevant.

Nothing new here. If LIF don't get you, FASEA will! Unofficial estimates of the fall in genuine new business ( which excludes premiums inflated by "ageing" stepped premiums, CPI increases and the price gouging ALL insurers engaged in pre LIF) say that premiums are down by 25%-30%, and heading south. Other signs are there - less underwriters, reduced BDMs, slower new business processing.

Every independent actuary in this country knows that situation is UN-SUSTAINABLE for more than another year, but are scared to say publicly.

Right know there is a "conga line " of gutless insurance CEOs who have, begrudgingly,rather meekly come out to say life risk commissions should continue, but conveniently pass over nominating a level of remuneration and ignore the el4ephant in the room, the 2 year clawback.

Rumour is the always-sleeping APRA may have noticed the problem, but they do move at snails pace.

Now that he has re-discovered his political mojo, the Treasurer should declare 80/20 as the official rate, and alter the Clawback back to one(1) year.

Most risk -only advisers could survive on 80/20 AND a one year clawback with fees of up to $880. But that's the limit clients will pay.

Some insurers believe they can survive declining retail new business by flogging rubbish products directly, under GENERAL ADVICE. Others who have done well selling GROUP cover to super funds, are now realizing the Group rort of selling default cover to young people who rarely are sick has been busted by the Governments adoption of the Productivity Commission recommendations. A lot less money for jam there now !

My prediction - common sense will come out eventually, particularly if APRA finds its kahunas.

But by then there will be a lot less risk specialist advisers, thanks to FASEA, capable of providing good quality new business so underwriting expenses will increase to protect the existing book of business. Cest la vie !

Effectively, if all RC recommendations are adopted it will deliver the death knell to the life insurance industry as it's been for 170 years. Is this what the government wants? Do ALL stakeholders have any say in this, or is it simply the government and life insurers who make these decisions irrespective of whether it'll drive small businesses to the wall? If not considering these stakeholders it must be asked: is this proposed draconian action even legal?