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Life insurers may need to consider providing relief to advisers around LIF clawback provisions if the COVID crisis worsens and more Australians become unemployed, the head of a major dealer group has said.
In a forthcoming episode of the ifa Show podcast, Synchron director Don Trapnell said while insurers had been accommodating in providing temporary relief measures for policyholders early in the pandemic, lapses were likely to rise as the longer-term economic impacts of the crisis continued to be felt.
“As this thing digs deeper, and it’s still got a ways to run, we are going to see life insurance policies fall off the books,” Mr Trapnell said.
“The tragedy is the LIF was never designed to cater for a situation where consumers were forced to stop their premiums, so we are going to find the two-year responsibility period particularly galling for advisers.”
Mr Trapnell said one insurer had already offered to temporarily defer premium clawbacks for clients that cancelled their insurance during the crisis, but he suggested that such a measure would be “delaying the inevitable”.
“We believe if a lapse occurs, unfortunately the writeback is going to have to occur unless they change the law,” Mr Trapnell said.
“Insurance advisers have certainly rung my office and said ‘why can’t you get the company not to write the premium back’, but the short answer is it’s the law – it’s not something they have an option on.
“The concentrated effort has to be on preventing the lapse as opposed to trying to manage the writeback, and the way you manage that is through premium holidays or cover suspensions.”
Figures released by Roy Morgan last week revealed that almost a quarter of the Australian workforce was currently unemployed or underemployed, as fears grew that the nation’s economic recovery would be hampered by a surge in COVID cases in Victoria.
However, Mr Trapnell said a surprising increase in new business among the group’s advisers was for the moment offsetting lapses that were occurring for affordability reasons.
“Coronavirus has forced advisers to adopt new technologies, so we’ve got a whole quantum of advisers who have discovered something new and we’re finding they are talking to far more clients now than they were before,” he said.
“As a result of that, more insurance reviews are being undertaken and more sales are being made. As time goes on and we get used to using this sort of media, I think we’ll find advisers are going to ease back on the amount of interaction they have, but right now we are seeing an uptick in new business as a direct result of coronavirus.”
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Comments (21)
Show me one insurance company that has put that in writing Don. Don hopes that tbey might but we all know that they won't.
The insurance / financial planning industry is going down faster than the Titanic. 432 advisers exited the FAR register last week. 3 started? People are moving the deck chairs on the Titanic but it is still sinking very quickly. Soon there will only be a few of us left. Sad really.
www.ifa.com.au/risk/28157-underinsurance...emium-hikes-lif-bite
If an adviser was purposely replacing business within the first 2 years, there would be a penalty applied.
This issue now is that the majority of reasons why policies are being cancelled or reduced within the first 2 years has nothing to do with advisers replacing existing insurance policies but everything to do with skyrocketing premiums and a pandemic resulting in unprecedented impacts on people's lives, employment and incomes.
None of these factors are of the adviser's doing and none are a deliberate action to gain a financial advantage.
And yet...here we are being significantly disadvantaged and compromised simply because 6 months, 12 months, 18 months ago we provided advice to clients in relation to their risk insurance needs and provided a financial protection strategy to protect, individuals, families or businesses.
This is on top of all the insurance policies that are now being cancelled or reduced because of the financial impacts that may have been in place for many, many years........no clawback of the initial commission, but a loss of ongoing commission again through no fault or recommendation from the adviser.
The adviser has been compromised on every single front...it is a perfect storm of destruction.
No worries, the 14,000 retail advisers & life agents will keep reminding our MPs this until the Haynes RC/LIF lunacy against agents & advisers ends. We are going direct now, no need for the FPA any longer.
They hold us to account based on hindsight and they must be subject to the same standard.
As to profitability of insurers there are a lot of contributors to that debate, but the impact of reduced comms and clawbacks I believe has causedmany advisers concern.Genuine new lives with new business is down 40%, and that will kill every Number 1 Fund eventually-its just a matter of time