The Cost of Delivering Life Insurance Advice:
A Forensic Analysis

In addressing what can sometimes be a complex process, Elixir Consulting’s Sue Viskovic considers all the stages typically associated with a life insurance advice proposition, and the time each stage may take. In doing so, Sue has developed a template that can serve as a fantastic starting point to assist advisers to cost the delivery of life insurance advice…

There is a lot of difficulty in adequately pricing advice on insurance, as there is rarely a ‘common’ scenario. There is, however, a typical process that many advisers will follow, to implement advice for a client. I have made an attempt to summarise in the table below, the typical steps required to provide insurance advice for a client. This considers only the situations where insurance advice is provided as standalone advice, and not included as part of an overall financial plan. Please note that there are many variations on this process, depending on the advice business and the client type, but this provides a typical example (assuming a business that uses a paraplanner, whether in-house or external to the business, and an admininstration support staff member). I have noted the ‘average’ time for each staff member to conduct their part of the process:

Process Stage Adviser Paraplanner Admin support staff
Initial enquiry discussion and prep for first meeting 15 minutes   10 minutes
Conduct first meeting, understand the client, complete file notes 2 hours    
Input client data to CRM software/set up client file/follow-up client for statements, etc     1 hour
Research client’s current holdings and consider appropriate recommendations 1 hour   1 hour (send authorities and conduct research)
Obtain multiple quotes for suggested recommendations 30 – 45 minutes    
Document recommendations in SoA 30 minutes (instruct then review) 2 – 4 hours  
(Possibly) run new quotes on revised terms as requested by client 15 minutes    
Complete application forms with client 1 hour    
Arrange for, and follow-up, underwriting requirements until complete 45 minutes   3 hours
Total time (average) 8 hours 3 hours 5 hours
Average hourly charge rate $299 $171 $105
Total average costs per staff member $2,392 $513 $525
Total average cost $3,430

 

Using an average charge-out rate* of $299 for advisers, $171 for paraplanners and $105 for support staff, this means that to put insurance cover in place for a client, the business will likely need to recover at least $3,430. This does not account for significant challenges with underwriting and needing to discuss revised terms, loadings, exclusions, etc.

Note that among the possible variations to this suggested process is that some advisers will use the tele-underwriting services of the insurer, thereby removing approximately $315 worth of cost to the business, based on the above example.

There are a whole host of challenges when it comes to pricing insurance advice, which can be found in my book, Pricing Advice, where I reveal these challenges and provide suggested solutions, for advisers wishing to shift to a fee-based model. The two largest challenges for commission-based advisers to face are:

  • How to account for the number of clients they provide advice to, where the insurance doesn’t complete, whether by choice of the insurer or client, and
  • How to manage claims for clients

Ongoing commissions are typically considered to remunerate the adviser for two things:

  1. To review the client regularly to ensure their cover stays appropriate for their changing needs, and
  2. To assist a client if they need to make a claim. It is at this time that the client is most in need of support to lodge and pursue a claim with the insurer, and arguably the moment that the adviser demonstrates their true value. Unfortunately, assisting a client with a claim is a time consuming process, and most advisers do not charge a fee for this service – rather they consider it as being an obligation, for the ongoing commission they receive from all of their clients, that is costed on an averaged basis (ie: whilst the ongoing commission for that client may not cover much of the time spent assisting with their claim, the adviser may only ever receive a claim from a small percentage of their client-base).

This template and associated commentary is one component of Elixir Consulting’s submission to the John Trowbridge-led Life Insurance and Advice Working Group. Sue’s aim with her submission was to raise awareness of the work required within an advice practice to deliver advice on life insurance solutions. Her life insurance advice pricing template was positioned in her submission within a context that the current adviser remuneration model is unsustainable, but there is evidence the existing fee-based remuneration model for life insurance advice is also flawed.

We thank Sue for the opportunity to reproduce this extract of her LIAWG submission; advisers can take this link to read the full submission: Elixir Consulting LIAWG Submission

*Source for charge-out rates: Adviser Pricing Models Research Report Third Edition

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In Practice Management, Elixir Consulting shares strategies for building better advice businesses.

Sue Viskovic is the Managing Director and founder of Elixir Consulting, a specialist consulting and coaching firm that is dedicated to helping financial advisers and risk specialists to get their businesses performing better.

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