Gap in advisers writing life insurance growing

In its latest edition of the Adviser Musical Chairs Report, Adviser Ratings found that just 480 advisers were responsible for writing half of the new business during 2023.

The reason for this, according to Adviser Ratings, is the Life Insurance Framework heavily reducing most advisers’ engagement in the life insurance space.

“However, a small proportion of high-performing advisers have responded by capturing a much higher share of the available new business,” the report said.

“To showcase the effect on advisers, we divided them into four segments: A, B, C, and D, based on how much new business they wrote in the preceding six months. Each segment represents a quarter of new business written, sorted by total amount per adviser. Segment A wrote the most per adviser, while segment D wrote the least. We then analysed how these groups changed over time.”

The top segment was made up of just 118 advisers, who wrote around $190,000 in new life business on average. Segment B, comprised of 362 advisers, sat closer to $60,000 in new business per adviser.

“The high-performing advisers in segment A are now writing more risk than they did in 2020, before commissions were heavily capped,” the report said.

“At the other end of the scale, segments C and D (820 and 5,099 advisers, respectively) are still participating in the market, but wrote very little in risk volume over the six-month period.”

In September 2023, Adviser Ratings reported that half of all life policies were written by 493 advisers in the six months to 30 June 2023. The other 50 per cent were written by 5,880 advisers, taking the total pool of advisers that wrote life policies to 6,373.

While the top end number has shrunk, the number of advisers writing life policies has grown slightly to 6,399.

According to Adviser Ratings, the life insurance sector is continuing to experience greater demand than advisers can service.

“The life insurance industry has been under strain for some years, and that has a number of implications, including an ongoing and widespread underinsurance issue. Last year, lapse rates jumped, as consumers contended with the rising cost of living and premium increases. It’s an undesirable scenario for insurers, advisers, and consumers,” the report said.

“Our research shows that advisers have capped out on the level of servicing they can do for risk clients, against the reality that the demand for life insurance remains strong but is not converting due to higher premiums, and individual advisers’ willingness or ability to service the clients, or the cost to place business.”

The industry and government, the research firm added, need to implement incentives for brokers and advisers to collaborate or direct incentives for customers, ensuring that consumers are “guided towards more effective and reliable insurance options that offer better value and protection”.

“The industry needs to not only overcome the immediate legacy pricing, pre-assessment, underwriting and operational issues, but become more creative in developing the psychological imperative for life insurance,” the report said.

“Most people need life insurance as one of their first financial products and it is a great runway for people to move into longer term financial advice as their needs change and evolve over time.

“This creates the ongoing and long-term economic uplift of introducing people to financial advice when they’re young; engagement with financial advice as a sector (even via other referral mechanisms or aligned industries) can improve over the long term through a strong, robust, profitable life insurance sector.”