Secret report calls for sweeping life insurance reforms

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The hardcopy of a confidential report into the $13 billion life insurance industry in Australia was allegedly couriered to insurance big wigs for fear of electronic copies being leaked.

The report identifies a dozen problem areas in the life insurance arena and calls for sweeping reforms, The Sydney Morning Herald reported.

Warnings about the impact of in-fighting within the industry over advisers’ commission payments, the conduct of product rating houses, and the increasing financial impact of ambulance-chasing solicitor claims feature heavily in the report, it said.

According to industry insiders, life insurance premiums are set to rise by around 50%. The industry currently generates almost $13 billion in premiums annually.

 Life insurance “churning”, whereby advisers encourage policyholders to frequently switch policies to generate more commission, continues to be a major problem according to advisers and product providers.

An average adviser receives about 90% and 110% of the first year premium commission on any new policy, and subsequently up to 13% of annual premiums for the entirety of the policy, Australian Financial Review reported. Nine out of 10 advisers use this model.

The article quoted Anthony Brown, the CEO of Noble Oak, who said many life insurers continue to add low-value features to their products in order to obtain higher grades from the ratings agencies and allow advisers to justify a switch to the new product.

“It is clearly difficult for many financial planners to act objectively and in their client’s best interests when the financial incentive is so high to sell life insurance policies,” he said.

The secretly delivered rumoured report is timely considering Treasurer Joe Hockey’s recent warnings that massive welfare spending is set to be slashed.

It is expected this will put greater emphasis on insurance to cover any unexpected changes in living standards or gaps in care.   
  • Concerned on 8/05/2014 10:06:33 PM

    Having used hybrid comms since 1995, i have a great renewal stream. 70% are Level premiums, so life's good for my clients & they almost never leave. The higher renewal % covers review costs. Like dud investment products that fail, the manufacturer is the party doing the most evil, but they all say its the advisers - what a joke.

  • Adviser B on 30/04/2014 9:17:47 AM

    Some clearer data on churning would be handy.
    I see a bit anecdotally - ie, new clients arrive having grabbed whatever insurance paperwork they can find, and I see that they have been switched around 4 times in the past 7 years. Obviously I cannot see the reasons behind the frequent changes, but it does look suspicious.

    Upfront commissions from memory pay the least after 4? years, which might suggest that 90% of advisers have no intention of having their client's hold an insurance policy beyond 4 years (though there are valid reasons why an insurance policy may be considered temporary, due to the client's changing circumstances such as age or employment).

  • Mark Thompson on 29/04/2014 2:58:33 PM

    If an insurer dared to offer a unique feature the rating house won't rate it because they can't compare it with others who don't have it. The most important feature of insurance is willingness to pay claims promptly, which is not rated. Assessment of claims processes and payment track record should be compulsory.

  • John Walker on 29/04/2014 2:46:05 PM

    This stuff of "churning".... I still don't believe it ... insurers have yet to provide any data indicating the amount of churning... and as others have said the "insurers" should know who the naughty ones are... so the insurers are "aiding and abetting" .... whatever that means .....

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