Ever-savvy customers are shopping around for the best life insurance deals and advisers are getting “blamed” for being greedy with upfront commissions.
Last week, Suncorp managing director Patrick Snowball told a business lunch in Sydney that adviser business models have become reliant on high upfront commissions and this is unsustainable.
But Suggars & Associates risk adviser Meike Suggars, who has been in the risk industry for four years, told Wealth Professional
if she had not been able to take upfront commissions she would not have been able to start up her business.
She disagrees upfront commissions are too high, and says although it is easy to blame advisers, the issue of insurance sustainability is much bigger than just commissions.
“It’s obviously in the adviser’s interest that insurance companies are sustainable. If my insurance companies go out of business then I go out of business, so it’s really important to me that the industry is sustainable.
“But I think just focusing on commissions is kind of a cheap shot. At the end of the day, the insurance companies have a product that becomes obsolete before it becomes profitable and that’s not just because of commissions, that’s because of their whole business model.”
It is an adviser’s legal duty to act in the best interest of the client, so the best insurance product will be recommended regardless of any commission, said Suggars.
“Maybe upfront commissions are part of the puzzle, but I don’t think canning upfront commissions is going to magically solve all of the sustainability issues in the industry.”
Suggars feels advisers are getting blamed instead of the real problems being sorted.
She points to Asteron Life, which is promoting a hybrid step commission structure instead of upfront called ‘2 for 10’. “I don’t think that’s going to solve the problem of sustainability. I think that’s a short-sighted move.”
Instead, insurance companies need to look at underlying issues for lapse rates, by asking new clients why they are changing policy and then analysing the response across the industry, she said.
“And then we can sit down together as an industry and work out how we can make the industry sustainable, because it’s in everyone’s best interests to do so.
“It shouldn’t be advisers versus insurance companies; we should be doing this together.”
Asteron Life adviser distribution executive general manager Jordan Hawke agrees.
“Upfront commissions are only part of the conversation. It’s become very clear that there are some structural challenges that the whole industry faces and as a business we’re looking at what are the drivers of that and we want to work with advisers to create a sustainable model in future.”
However, he does recommend advisers move from upfront commissions to an alternative remuneration model which will give greater long-term value.
“We said [to advisers] if you’re prepared to change your behaviour then we’re prepared to give away some margin to help you do that. I think upfront commissions will ultimately come under pressure but whether that’s driven by industry or regulators is still yet to be seen…The best option we have is to self-regulate.”
But Hawke says the main industry problems lie around how products are being designed and cost of acquisition recovered.
“I think as an industry we constantly turn to advisers to solve problems, and that is totally the wrong approach. What we need to do as an industry is look at ourselves first, and understand what the drivers of where we’re at.
“Product development where we constantly leapfrog each other for best definition cheapest premium is not sustainable.”
Last month, assistant treasurer Arthur Sinodinos told an Association of Financial Advisers conference he did not support the banning of payment on the sale of risk products.
"Recent experience in the UK indicates that banning commissions on risk insurance just doesn't work," he said, adding the ban had been revoked.
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