Although the advice community is well aware that risk specialists are becoming a rarity, this year has seen numbers plummet, leaving fewer than 200 'pure risk' advisers in the country.
Adviser Ratings analysis shows the pure risk segment has dropped by 67 per cent in less than a year, while the volume of ‘high-risk’ advisers has halved.
There are now 225 advisers handling a quarter of all inforce in Australia – averaging $4 million per adviser.
Meanwhile, with under 16,000 advisers in Australia, 77 per cent are now writing little to no risk, compared with 60 per cent last year.
The changes undoubtedly have implications for ‘orphaned’ clients and for insurers, who are having to become increasingly nimble and targeted.
Figure 1 – Proportion of risk advisers remaining
Source: Adviser Ratings
While some advisers who wrote a high volume of risk have exited the industry, others have told us they’ve retreated from it due to remuneration changes, complexity or compliance issues.
One adviser put it like this, “I used to write a lot of risk, but [moved away from it after October last year]. It is physically impossible to compliantly provide income protection advice without a large fee being charged, which clients won’t pay."
Quality of Advice proposals
Amid all this, the Quality of Advice Review has proposed keeping the current exemption to the ban on conflicted remuneration for life/risk insurance products, allowing level or capped commissions but requiring advisers to get written, informed consent from clients if receiving them.
In her proposal, reviewer Michelle Levy stated that the adviser would have to tell the client about the commission they would receive for the duration of the policy, as well as the type of ongoing service they would be providing.
“A financial adviser is an intermediary who has undertaken to provide advice in the best interests of their client,” she wrote.
“If an adviser will receive a benefit for the sale of a life risk insurance product they recommend to their client, they should have an obligation to tell the client about the benefit and the client should have the opportunity to consent (or not) to the provision of that benefit.”
Quality of Advice findings
To help inform its suggestions, the Quality of Advice Review received file reviews from before and after the LIF reforms were introduced.
The comparison revealed an improvement in compliance and performance of best-interests obligations (pass rate of 58 per cent in 2021, compared with 37 per cent in 2021), as well as evidence of reduced churn. There were also fewer files that prompted concern about the risk of client harm (7 per cent in 2021 versus 12 per cent in 2017).
However, Ms Levy said it was difficult to ascertain whether the LIF reforms were the cause of the improvements.
“This improvement could also be attributed to a number of other factors, such as the implementation of the professional standards, which introduced education and training standards for financial advisers,” she wrote in the paper.
“The data also indicated an increase in the age and wealth of clients that received life insurance advice. This might indicate that lower commissions have encouraged advisers to prefer to provide advice to those with higher sums insured and higher premiums.”
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Comments10
"So we have another "expert" trying to reinvent the wheel in regard to the poor old risk insurance advisers. Michelle Levy follows a long line of regulators who have no idea what they are talking about or proposing. She probably won'r read this, but here goes anyway: Michelle, the LIF reforms did work. Your stats proved that. No need to go digging further to make life more miserable for the dwindling number of risk advisers. Professional standards DID NOT improve the standard of advice. The few rogues left with no with a limited supply of ethics still continue to do what they always did. They are just a bit smarter now that they have passed an exam, and the younger ones will eventually have a university degree which will still not guarantee a more ethical approach to their work. By the way, risk insurance is not rocket science. You do a needs analysis, consult with the client, and implement policies. I don't know how many SoA's you have read, but the standard commission disclosure does in fact tell the client that the risk adviser is remunerated by commission every year that the policy stays in force, and that this is NOT a fee charged to the client. This commission pays for the adviser to keep running a business, review policies as necessary, and most importantly to be there when the client suffers a loss. Thankfully I have retired. During a long career in the noble profession, I assisted in the payout of millions of dollars for life insurance, TPD, trauma, and of course many income protection claims. I did not charge a fee for this service, because I believed that the commissions I received were for that purpose. Have you looked at the daytime TV ads for life insurance. I suppose you haven't. Nor have you looked at the abysmal claims experience, and the poor service provided at the end of a 13 or 1800 number in an overseas call centre. I you keep up the unnecessary regulation and bias against commission, this is where the market will go, and thousands of Australians will not have received the advice and cover that they need."
Retired 11:29 on 08 Dec 22
"How on earth has the reduction of commissions by 50% and the addition of a 2 year claw back period resulted in premiums INCREASING by over 50%? Got a renewal today (policy went into force in December 2021) with a premium increase of 40%! Ethically (and morally) I'm bound by the code of conduct to act in the client's best interest. If that's finding a lower premium (for like for like cover) then that's what I need to do. Where is the commercial benefit for an adviser facing a claw back that is potentially higher than any new commission payable? When will the big end of town (product providers) be held accountable instead of the little advisers, who are all working their backsides off advising clients and tackling the massive underinsurance in this country? It's high time some common sense prevailed and more people were insured."
David Walter 20:57 on 30 Nov 22
"The changes that have happened have been driven by the life insurance companies, hopefully it results in them going out of business themselves given the mental health toll they have put risk advisers through. I'd be curious how many of the large writers are using a general advice model since insurers seem to be happy with those advisers and it provides much less compliance work with this likely to reduce even further once Ms Levy is done."
Scott 18:43 on 30 Nov 22
"The headwinds for me to write new Insurance has been caused by 3 factors. 1. 20-30% premium increases 3 years in a row, and this is not including CPI increases. My clients are very angry, and are reducing their cover substantially, or cancelling it altogether. 2. The Insurers (or the Re-Insurers) have "tightened up" their Underwriting. I am finding it very hard to get the cover in place. 3. The IP changes from "Own Occ" definition to "Any Occ" definition after 2/5 years on Claim. This has reduced the value of the Retail policy compared to the Group Policies available, but is still more costly"
Daniel Skinner 17:45 on 30 Nov 22
"No client has ever paid "commission". Manufacturers pay commission to compensate advisers for distributing and supporting their product. Is there any other industries where the distributor must disclose the commercial arrangement they have with a manufacturer? It is none of the customer's business. Being paid commission does not prevent an adviser from acting in the client's best interest, complying with the law, acting ethically etc. There is no fairer way. Surely, our insurers should be ensuring that their products are sold ethically, responsibly etc and can refuse to deal with those who are not doing the right thing. "
Ramon 16:25 on 30 Nov 22
"What a joke this industry has become in the Life Insurance Sector, supposedly meant to be professional yet paid nothing near that, the compliance is through the roof wiping away further costs from the smaller commissions payable, feel like I have wasted a lot of my life to get the role of my dreams, to be cut to be earning nearly nothing like the advisers before all these changes came into play and forever worried about being sued or losing commission due to clawback rules"
Not impressed 16:23 on 30 Nov 22
"Attractive as it may seem, the abolition of an SOA/ROA should never have been the target of any review. Despite the fact our risk only clients never read them and don't care about the commission disclosure up the back, as advisers we need some sort of protection, regrettably. But we shouldn't have to repeat the same information at least three occasions in an SOA, just to be sure, to be sure, ASIC style. A 38 page SOA to sell someone a term life policy on a personal advice basis is just a very sick joke. If Miss Levy was an independent thinker and not someone living in ASICs shadow, she might've investigated the old four page CAR-that's Customer Advice Record for the newbies The real issue is that what's in the SOA, and why is it there. For example why should I have to justify my product recommendation for $1 million of term by referencing three other insurers who may have provided the same product for more premium and whom I would never have recommended. That's an ASIC wet dream, because they hate risk advisers and hate the fact that the industry needs to pay commissions, carrying on with their old suspicion that a product was selected because the adviser had a preferred commission deal with a particular insurer: that's all gone because of LIF. But we advisers who choose or can't charge fees, have to carry the economic uncertainty of providing risk advice , never really knowing the outcome of the application until the underwriters and the reinsurers are finished. And then carry a risk for two years of losing our visible remuneration if a client changes their mind a year later. Fabulous investment! The problem with Miss Levy, apart from her regular kite flying exercises before the final presentation, is that she clearly listens to Treasury and ASIC, and they are the reasons we are where we are, because they never consult advisers. I'm given to understand that APRA not only did not consult any adviser organisation before the 2021 changes to IP, but apparently never really consulted with the insurers, the product manufacturers. It was just announced is a fait accompli just as the (alleged) chief instigator of the changes retired to pursue more bovine interests."
Bill Brown 16:22 on 30 Nov 22
""Could" is a word that can be interpreted in different ways. The one undeniable outcome of the last decade of never-ending investigations, Royal commission findings and plethora of opinions, is that the end result of the implementation of the supposed improvements, has been to decimate the risk specialists who were the backbone of the Industry and to scare off the majority of Advisers who wrote Life and Disability Insurances, which has meant premiums doubling and less Australians with appropriate types and levels of cover. Michelle has made some good suggestions and even she is unsure of what is the best path and reasoning for what has occurred. Specialist risk Advisers were warning years ago, of what would occur if the changes were enacted and they were ignored. What has been suggested is a step in the right direction, though there will need to be a lot more done to make it attractive again for the survivors and possible new entrants to dive in and make a career out of being a risk specialist, or for that matter, to put their toes back in the water."
Jeremy Wright 15:52 on 30 Nov 22
"I can't believe the Life Insurance companies are not pushing back. They'll be out of business or much smaller businesses in 10 years time if this continues. "
Daryl La' Brooy 15:12 on 30 Nov 22
"I think I'll go sell Solar Panels, take big commissions, no disclosure and no blow-back. No wonder risk insurance is a lame duck, who would consent to $thousands and $thousands of commission over the lifetime of the product and annual fee disclosure statements and see the value in that. They'll D.I.Y day-time televsion risk policies that are flawed. The SoA spells out the commission regime and at any rate does the client think it comes for free? We charge for our experience , skill, professional knowledge intellectual property and we absorb the loss-making client applications declined because of health risk. Risk business, is business, and QAR has put that business at R I S K!"
You've Killed the Goose 14:42 on 30 Nov 22