Lapse: Definition needed urgently

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How do you solve a problem when you don’t know what’s causing it?

That’s the question that is plaguing Meike Suggars and other risk advisers in Australia. Suggars told Wealth Professional that she is frustrated that advisers are so often blamed for problems within the industry that are outside their control.

“…Whether it’s coming from politicians, media, industry lobbying bodies like the Industry Super Network, even the Financial Services Council talking about an issue with the lapse rates, and yet there’s no standard definition of what constitutes a lapse,” Suggars said.

For many insurers a death claim will be considered a lapse, which is obviously outside the control of advisers. Lapses could also include income protection policies that expire at the age of 65, or when a client stops paying the premiums because they don’t have the debt any more.

“Ninety-nine percent of us do amazing work for our clients and I just find it really disappointing that it often feels like it’s being undermined and the reasons given are completely out of our control.

“If the insurance companies really are facing a sustainability issue, that’s bad for me as a risk adviser because the less insurance companies that are out there, the less choice and the less variety of products there is available to me…I want them to be sustainable, but I don’t think that just focusing on the upfront commissions is going to solve the problem of sustainability for an insurance company.

“But at the same time we don’t know what it is we have to address. We’re trying to fix a problem and we don’t know what’s causing it.”

Suncorp Group’s life insurance boss, Geoff Summerhayes, told The Australian Financial Review that many life insurance policies written several years ago were no longer profitable and contributed to profit hits across the sector.

Summerhayes, however, believes that how some financial planners received payments for life insurance advice, was a big factor.

“The product structures that the industry has, particularly around stepped premiums, has forced a situation which doesn’t encourage longevity in product holdings because of the steep increases in premiums,” he told The Australian Financial Review. “We need to shift commission structures to a greater proportion of hybrid and level [payments] as opposed to large, upfront commissions which can be seen as an incentive to move policies,” he said.