Should risk insurance be taken off its pedestal?

In a trendy move, Findex Group is pushing away from hybrid commission models and into the fee-for-service model for all risk advice as of 1 July 2015. This change applies to Findex and Centric Wealth, with Crowe Horwath also set to change in the near future. 

Adviser resistance to changes in how they get paid has been strong, and institutions have fought against the changes since it directly impacts their bottom line, particularly if incentives go above and beyond attractive products. The change has been somewhat agonising for the industry, despite movements being made en masse by large and small operators alike in recent months. 

Advisers are being very vocal about the latest round of changes, with the main issue still being the loss of risk advice income that many advice businesses are at least partially built on. It seems, however, that advisory practices surviving only on lucrative ongoing commissions will go the way of the video store, leaving these practices with two options: restrategise or die. 

Pressure on life companies to eradicate churners has been nonexistent, arguably causing at least some of the problems we now see emerging in being forced to change to fee-for-service or level commission structures. 

AMP and Centrepoint Alliance are implementing hybrid or level commissions models in a bid to ward off future legislation for an industry facing hefty regulations due to its lack of action. AMP has encouraged other companies to follow suit, and not waste time about it. 

A riskinfo conducted a poll recently asked advisers if they supported the move of ANZ and Centrepoint to hybrid commission structures. Two out of three respondents  (65 per cent) supported the move, which left quite a large percentage – 30 per cent – still against the idea and five per cent unsure. Editorial notes regarding the poll include that in a recent poll regarding support for hybrid models generally, 82 per cent said their advisory practice could successfully operate under a hybrid commission structure for life insurance advice, making clear that, yes it’s possible to switch, but many advisers will keep the status quo operational for as long as possible. 

The commissions cash cow, however, is dying. Fortnum recently ditched commissions completely, with the company’s executive chairman Ray Miles making a good point: it’s possible that – like the health insurance industry – people could simply buy their risk insurance themselves, as many already do, without needing advice at all. Risk advice has always attracted healthy commissions and it could be argued that the entire risk insurance industry may have overplayed its cards somewhat, like the proverbial house of cards. This breath of wind from the top may topple the stack entirely, leaving a lucrative industry without its fortune cookies. 

This won’t stop people paying for risk advice, but it will stop most people paying for risk advice, just like very few of us (if any) pay someone to help us choose health or car insurance. Those with a lot to protect can pay the fee to get professional advice  as they would for any of their other financial needs, since they presumably have the money and the inclination – a set fee is no big deal. Add it to the bill. Health insurance is arguably no more or less complex at its heart than risk insurance, and most working Australians have it, chosen by them.

People insure their cars and contents religiously, showing that people aren’t afraid of insurance; they’re afraid of the advisers selling it and the house of cards that seems so clearly stacked against consumers, obvious to everyone except those inside it. Maybe the ‘underinsurance problem’ is a result of an industry that has overcomplicated itself, and in a bid to maximise those voluptuous commissions, somehow lost its way. Maybe it’s time risk insurance got taken off its pedestal.