Adjusting the remuneration of advisers is not the only answer to fixing the policy lapse issue currently dominating the market.
In its 13th annual CEO Report, the Financial Services Council said that current remuneration structures of risk advisers are exacerbating the ‘churn’ problem.
Suggestions made to improve this included placing time limits on policies so that there is some fee claw-back if policies are exited earlier than this time limit. Another was to have retention KPIs for sales staff, as well as new policy sales targets.
However, Jordan Hawke, head of Asteron Life, says that Australia is suffering from high lapse rates rather than excessive churning, and that adviser remuneration is not the only facet that should be addressed.
“We’re looking solely to the adviser to solve the problem of the industry, rather than thinking about all the players responsible in the industry to solve this problem,” says Hawke. “To reduce commission rates or provide longer responsible periods will certainly help in some instances, but it won’t fix the underlying problems of the industry.”
Hawke says that the lack of a deep relationship between clients and insurers is a contributing factor to clients cancelling or changing their policy when times are tough and they can’t afford it.
“The reason they can’t afford it is that they don’t see value in the product they have.”
It is the adviser’s job to find the client the best deal for what they can afford, says Hawke, but insurance companies constantly “leapfrogging” each other to get competitive advantage is making the industry unsustainable.
“We need to have a deep relationship with the customer that buys our product, to give them confidence that the insurance they have in place is sustainable; that premiums are sustainable. I also think as a manufacturer, we need to look at the way products are structured from a premium point of view to stop this ridiculous J-curving of step premiums as you get older and people cancelling their products at the time they need to keep them.”