Insurance industry commentator and former regulator John Trowbridge has called for the retention of sales commissions for life insurance products, saying that the alternative fee for service model does not work in the industry.
By Lachlan Colquhoun
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Insurance industry commentator and former regulator John Trowbridge has called for the retention of sales commissions for life insurance products, saying that the alternative fee for service model does not work in the industry.
Speaking at an FSC Summit session on ‘Channel disruptions, challenges and opportunities’ in Life Insurance, Trowbridge said it was “important for the industry to find a way to persuade the community” that the commission model was the most appropriate in this sector.
“The Royal Commission has recommended that if there is not a satisfactory outcome on commissions in three years they should go,” said Trowbridge, a former member of APRA and the author of a 2015 report on the life insurance industry.
“There are plenty of other people out there who think that commissions are evil in some way and yet well all know that if there are no fees there are no payments – I won’t call them commissions - from providers which can reward an adviser, and we also know that fee for service doesn’t work in life insurance.
“The disruption we have to avoid is a threat to the ability to have commissions.”
Trowbridge said that under the current system commissions were graded for higher value customers, but there was not enough revenue from lower value customers and “certainly no opportunity for fee for service.”
From Zurich Financial Services Australia, CEO of Life and Investments Tim Bailey said that with the adviser channel under pressure, one of the biggest challenges for the industry was to find the best channel to the customer in a time of disruption.
“In terms of direct we really need to rethink that channel, we need to rethink what is really an effective direct model,” he said.
“The three channels – retail, group and direct – are very important and it’s important that customers have access and we need to keep a lens on the importance of all three”.
Brett Clark, the Group CEO and Managing Director of the TAL Group, agreed with Tim Bailey that access was a key challenge.
“We currently have a highly penetrated market on comparative world terms but if we don’t have an underinsurance problem now we may well have in the future,” Clark said.
“It’s important we keep the access open to life products, or we could end up in a situation where fewer people have life insurance, and then people will look to government.”
Andrew Linfoot, the CEO and Director of Munich Re, said he thought the main challenge of the industry was to “protect our customer with affordable reliable products delivered cost effectively.”
“Trust is obviously a big issue,” Linfoot said.
“The moment of truth is often many years out and there are not many interactions in the meantime, and therefore our customers need to be able to rely on us in their moment of need. Our promises also have to survive decades.”
He saw reasons to be hopeful in the industry. Industry super funds had shown they were a trusted channel, and technology advances, such as natural language processing, big data, AI and robo advice would enable the industry to give “better advice at a cheaper price.”
The Summit audience were asked to vote on the question of what they saw as the “most important priority” for the life insurance industry.
The most popular response was from the 42 percent who nominated “addressing poor consumer understanding of life insurance.”
24 percent nominated the “sustainability of premiums” as the most important issue, followed by increasing mental health claims and vulnerable members being left without default group insurance (both 16 percent) while 2 percent cited the rising incidence of chronic conditions.
In terms of the industry structure, John Trowbridge welcomed the fact that the “whole industry is now owned by specialists” after a period of corporate consolidation.
Life insurers owned by the banks has “suffered underinvestment for a long time.”
“Now we have specialist owners who understand the business, and I think that is a really positive development,” said Trowbridge.
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