While 67% of risk advisers have experienced a profit reduction since the introduction of the Life Insurance Framework (LIF), 42% have not made changes to their business model to accommodation the reduction, according to a report.
An MLC Life Insurance commissioned whitepaper found that 34% had modified fees, 9% had dropped sales of life insurance – mostly by refusing small clients, and 7% had added extra services.
Source: Cost and efficiency of delivering life insurance advice whitepaper by Plan for Life for MLC Life Insurance
The whitepaper said that commission-only advisers might need to reduce their expenses by as much as 20% to 25% to return to profitability.
MLC Life Insurance chief of group and retail partners, Sean McCormack, said: “There is a need for more detailed knowledge of the true operating costs associated with providing advice, and how each facet of the process – such as marketing, administration, client servicing and compliance, can impact overall profitability.
“With upfront commissions reducing further next year, it is imperative that advisers act.
“The analysis shows these advisers should take the opportunity to better understand peer relative industry averages and use this information to review their own business’ costs and, potentially, make changes to their business model.”
When advisers were asked how they might change their business model if commissions were reduced to zero in the future, responses included:
- Changing their advice model towards one of providing wealth advice with little or no insurance advice offered;
- Streamlining back office administration practices; and
- Buying other businesses to improve scale.
Less than half (48%) of advisers surveyed said they were ready for the next phase of LIF.
McCormack said unless costs were reduced, commissions alone would be unlikely to support the profitability of current advice models and this would impact the number of Australians who were able to access advice.
“We strongly believe in the value of quality, lifelong financial advice and believe more Australians would benefit from receiving it. However, unless advisers can remove 20% to 5% of the current cost base for each business, advice will not be profitable, leaving many Australians to make important financial decisions on their own,” he said.
“At a time when Australians are taking on an increasing debt, access to advice is critical for the prosperity of our nation.”
The paper also found that a total of 10 hours was required by a risk adviser to prepare and implement life insurance advice for a client with a simple case, and up to 15 hours for more complex cases.
The white paper highlighted that life insurers needed to do more to improve the efficiency of the advice process by simplifying and speeding up the policy application and underwriting process.
McCormack noted that investment in technology, including digital and data, infrastructure, and support services was the best way to reduce cost and better serve advisers.