What do consumers want and can life insurance survive after a ban of commissions?

From

Brett Wright

A recent report released by life insurance specialist Brett Wright, has shed some light on the life insurance commission debate, from an advice practitioner and consumer point of view.

Life insurance is complex, confusing and people don’t wake up in the morning thinking about why they need to buy it.

Life insurance advisers cut through consumer apathy and are able to do this by making the process seamless for the consumer, often collaborating with other professionals such as accountants, and willingly providing advice and services without consumers needing to worry about being charged thousands of dollars in upfront and ongoing fees on top of their insurance premiums.

Advised consumers generally receive better value for money, know exactly what they are (and are not) covered for, have superior fit for purpose cover that they can count on, and they also have the help, support and advocacy from their adviser, every step of the way. Once cover is in place through an adviser, the consumer is in complete control, the policies are automatically upgraded and cannot be cancelled or changed by the insurer to the detriment of the policy holder.

A recent 2019 consumer study conducted by Rice Warner and Zurich, found only 8 percent of those surveyed indicated they were willing to pay more than $1,000 as an out of pocket fee for life insurance advice, none of the consumers surveyed said they were willing to pay $2,000 or more, almost 30 percent of consumers said they were not willing to pay a fee at all for life insurance advice and a staggering 55% of consumers said they were not willing to pay more than $250. Couple this research with income figures published by the Grattan Institute in April 2019, which show 80% of Australian’s earn less than $80,000 per year and the typical worker earns just $57,918 per year, it is fair to state that 90-95% of consumers would not be able to afford and/or would not be willing to pay a fee for service on top of their life insurance premiums, that covers what it actually costs an adviser to provide life insurance advice and services.

Remember, that since commissions have reduced under LIF reforms, premiums have been increasing, not decreasing – Fees for Service (FFS) in insurance increase costs for everyone and wipe out affordable access to pooled risk and advice for those who need it most.

FFS makes insurance advice unaffordable for 90-95% of consumers and forces them to rely on inferior direct or group insurance products that generally cover less, cost more and deliver poorer claims outcomes; or even worse, consumers will not bother with insurance at all.

There is room for FFS and consumers who want and/or can afford FFS can access this option already. But FFS should not be the only option and it is essential consumers maintain their right to choose between the commission and FFS models, and decide which is best for them.

Read the report

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Wright’s report has been supported by key industry leaders such as John de Zwart CEO NEOS Life, Michael Pillemer CEO PPS Mutual, Wayne Handley MD Bombora Advice, Helen Blackford CEO Lonsdale, Millennium3 & IOOF Alliances, Don Trapnell Director Synchron, Nettie Handley Life Insurance Advice Advocate and Ben Donald Adviser and Director Austbrokers Financial Solutions.

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