Australia’s life insurance industry is experiencing a pivotal moment.
We’re presently in the middle of a debate on the Life Insurance Framework (see: The Long Road to Life Insurance Reform), which will have a huge impact on the future of the industry. While adviser opinion rests somewhere on a spectrum between total rejection and full support for the provisions contained in the reform proposals, there is a deeper, much more personal issue accompanying this debate.
Every adviser has a view about the actual reforms, and what it will mean to their own business in terms of remuneration (and cash flow) and future business structure. The debate at this level is witnessing strong and vocal opposition to the proposed clawback provisions and the reduction in the level of initial income, especially when overlaid against the costs associated with delivering service to the client, and when those costs are incurred.
At a deeper level is where the hurt exists. This is what’s making the debate seem so personal to so many advisers. It’s not the proposals themselves that are hurting many advisers, but the underlying reason why they have been developed in the first place.
Any commission-based remuneration structure will, by definition, create potential conflicts of interest between the service provider and the customer. And while churning does exist and must be stamped out, it appears that too much emphasis on the structure of the reform proposals has been placed on the issue of churning, and not enough on the quality of advice (which was the point ASIC was trying to make in its 2014 Review of Retail Life Insurance Advice).
Because churning has become such an integral and underlying factor in shaping these reform proposals, the language being used by politicians, regulators and other industry stakeholders, which makes so much sense in a sound bite, brings into question the integrity of all advisers. The debate has skewed too much in the direction of how to structure adviser remuneration to stop churning. This has come at the expense of what should be at the centre of discussion, namely what reforms should take place in order to better serve the interests of the consumer.
Yes, eliminating churning would serve the interests of the consumer. But it’s only one of many issues that impact the general quality of life insurance advice.
Let’s have a debate about how to shape the entire industry to better serve the interests of the consumer. Let’s broaden the discussion to provide a greater focus than currently exists on how improvements in areas such as technology, compliance and product innovation will drive greater efficiencies and better client outcomes. Addressing churning should be a part of that debate, but not, as is the case at the moment, its focus.
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