In less than a year’s time, insurance pricing models will have to meet the new standards set by the Life Insurance Framework (LIF).
Elixir Consulting Managing Director Sue Viskovic explained at a recent Netwealth webinar titled ‘What do other advisers charge?’, for the next few years, pricing advice on insurance is going to be one of practitioner’s biggest headaches.
Elixir’s recent Adviser Pricing Models Research on how advisers are currently pricing their insurance advice, provides a great window into just how much things are already starting to change.
Of the 250 advisers included in the research who provide insurance-only advice, 92.4% take insurance commissions in some shape or form.
Elixir found there was variety in terms of what advisers do with those commissions and whether they supplemented them with fees.
The following pricing models were identified:
- 52.8% of advisers used commission-only with a variety of different types of commission options
- 35.2% charged a fee of some description
- 12.0% sometimes charged a fee.
In this last category, advisers provided a variety of reasons why they ‘might charge a fee’, including complex applications, or where the client’s insurance did not complete.
“We know that under the LIF, upfront commission models are going to be a thing of the past, and we're moving to hybrids where within two years, the maximum amount you'll get for the initial commission is 60% of the premium,” said Viskovic.
She added: “If they [advisers] are heavily reliant upon 120% upfront commission, and if that's going to drop by half in the next couple of years, then they may find themselves in a position where they're going to need to start subsidising their advice with a fee.”
Of the research participants who charged fees to provide advice on insurance-only, the main pricing model used was an advice fee and hybrid commission (36%). 22% provided their insurance-only advice on a fee-only basis and received no commissions. Viskovic said there were a couple of advisers in this group who took the commission, then physically refunded it. The majority wrote the premiums with nil commissions, so the client could get the ongoing discount on the premium.
Further, since this research began two years ago, the number of participants who did this for their insurance-only advice has increased from approximately 13 to 19 advisers.
“I wouldn't call that a massive swing and that, you know, this is the way the industry is going, by any stretch of the imagination, but it does show that there are some clients and some businesses that do exactly that,” said Viskovic. “They don't have any commissions whatsoever, and all their advice is provided on a fee basis.”
When it came to comprehensive advice that included insurance advice, the research found 37 participants have removed commissions altogether, preferring to charge a fee with nil commission ‘most often’, and a further 44 will use this method ‘sometimes’.
Viskovic said insurance fees are a source of concern for many advisers in the industry and an area that will require some attention.
“When I talk to advisors in the marketplace, there's a lot of risk specialists that are really concerned about the LIF coming in, and a lot have not started moving to fees.”
The clock is ticking.