Australian Advice Network CEO, Paul Forbes, takes aim at the product manufacturers and ASIC in this article, as he sheds some light on key issues that are having an impact on the ability of advisers and advice businesses to efficiently write new life insurance business.
While he acknowledges the impact of the Life Insurance Framework remuneration reforms on new business levels, Paul takes us on a journey that tracks the progress of one life insurance application. In highlighting the numerous roadblocks and friction points he and his team experience on this journey to place a single life insurance policy on the books, Paul is calling on the product manufacturers to do more.
His message to the FSC and to all life companies is that they need to look to themselves and to reflect on their own processes and procedures when reflecting on why adviser numbers and risk new business sales are both in decline…
Why have new life risk sales actually dropped?
We have three practices within our licence that have all historically placed large amounts of new life risk business. Over the last three years (and well before Covid-19), they have been reducing their life businesses.
… the administration of life companies has pushed the cost of on-boarding new life risk clients to extremes
Yes, the LIF Framework has made dealing with smaller clients uneconomical but the administration of life companies has pushed the cost of on-boarding new life risk clients to extremes. The ongoing management costs are also increasing exponentially. Add increased responsibility periods with no restraint placed on life companies increasing premiums by between 15% and 20% annually, and as a practice or licensee, you start to see more management risk than value.
The journey begins…
The problems start from the moment you speak to a client. Yes, they have a risk that needs to be covered and they would like to remove this concern.
First, you need to get an authority to look at their current insurances. One of our practices recently wrote to one insurer who advised their turnaround around times for these sorts of requests was 25 – 30 working days – just so that we can ring and ask questions about the client’s existing insurances. They can then provide a quote for new insurances but that is taking anything up to five working days. And good luck if you want a quote to reduce existing insurances, which can easily take 10-15 working days.
Of course, at the practice level, we have already organised a meeting, spent time with the client, agreed to work with them, provided an FSG, signed a letter of engagement, and collected AML documents.
We have then taken another meeting to complete a client data form and risk profile and of course, each meeting has a plethora of file notes. If it is a small business, we will need financials, copies of trust deeds and shareholder agreements. All this information is added to the practice’s expensive financial advice and CRM system.
We contact the client each week to advise them we are still waiting on their current insurers to process the client’s signed authority for us to source information on their behalf.
Four-to-six weeks later we finally have that authority and, after sitting on their ‘priority’ access for twenty minutes, we can ask the provider for information.
We should finally be able to prepare an SoA with some recommendations, but we are now waiting for quotes.
Each week as we wait, we send notes to the client saying we are waiting for pricing.
Some six-to eight-weeks after the client’s second appointment we can then start completing an SoA. Of course, we now have to go through underwriting.
The process continues
Tele underwriting is safest for the adviser, the practice and the licensee and this is another appointment to be scheduled by the practice and the life company. The tele-underwriters are good, so no complaints. But not surprisingly, the client needs tests and/or medical reports. This is then organised by the insurance provider, generally through a third party – UHG, for example. Then they follow up the client’s doctor who unfortunately, in most cases, sees responding to these insurance queries as a low priority.
Some weeks later, the underwriters request additional information and we diligently complete questionnaires or hound the client to go and have additional tests.
The medical data has finally arrived. We are about 10-12 weeks into the process now and we either need to advise the client of revised terms or, and not unusually, the life company has declined the risk.
If it is new terms, we arrange another appointment to discuss the revised terms and whether the client believes this new premium is worthwhile.
The client decides it is too expensive and asks for a new quote with lower insurances. We wait for quotes again.
Two things can happen from there:
- The client has lost interest and decides they will self-insure.
- Guess who pays for all that effort to this point. After four months of work, the adviser and practice have spent 50-60 hours chasing down information. They may charge an ‘advice’ fee of $2,200, but the client is not happy about paying it. In real terms the cost has been between $5,000-$6,000 to create an unhappy client.
- The client agrees to the new terms, the applications forms are completed, the life company takes another two weeks to process and finally the client has their insurances in place. We advise the client, finalise file notes, complete all the back-end procedures and tick the file as complete.
But wait – there’s more
Our licensee then decides to audit the file, reviewing all notes, AML, product comparisons, advice documents, client data form, insurance needs analysis and disclosures. Because the practice has done a good job, they are fine, but they pay another $550 for that privilege of an audit report, not forgetting the time it takes to prepare the file and respond to queries.
12 months later the life company increases their premiums by 15% (excluding CPI as we have removed that) and the client isn’t happy and wants their insurances reviewed.
We start the whole process again or they lapse the policy and the adviser, practice and licensee receive a clawback.
… the life companies are adding almost two months of time due to their own administrative inefficiencies
In this process we believe the life companies are adding almost two months of time due to their own administrative inefficiencies and lack of investment in data management.
Where to from here?
Yes, we should look to simplify the advice process and there are smarter ways to get applications up and running, but fundamentally life companies and the FSC need to look internally first and clean up their own back yard. For example:
- Make available streamlined products that exclude overcomplicated benefit schedules
- Offer lower-priced trauma/critical illness products that covers less risks
- Offer income protection policy options that deliver fewer bells and whistles
One could argue that part of the reason why the industry is going backwards at the moment is because ASIC is mostly listening to companies that are not in the advice business – they are in the product business. Why isn’t ASIC listening to advisers?