New risk business finally on the rise: Report

Speaking at a webinar on Tuesday regarding Adviser Ratings’ upcoming Advice Landscape 2024 report, Adviser Ratings managing director Angus Woods shared some of the report’s findings ahead of its release on Thursday.

According to the report, new business in the risk advice space hit a peak in 2018, with $537 million worth being written. However, there has been a steady decline by almost half in the years following, bottoming out at $273 million in 2022.

This year has seen a slight increase, reaching $300 million worth of new business; however, it is a far cry from previous heights. Woods noted that, although the risk industry has seen some improvement, much work is needed to return to pre-royal commission conditions.

Of the 15,589 advisers currently operating, only 6,600 are currently writing risk, with a total $6,638,000 in-force premiums, making up 69 per cent of all in-force premiums. The remaining of the $9,710,000 total in-force premiums is made up by dormant advisers, general advice advisers, and orphaned policies without an attached adviser.

While many have claimed that risk advice is a dying industry following Life Insurance Framework (LIF) reforms in 2018 that cut remunerations to 66 per cent for new business and 22 per cent for trail commissions, Woods was hopeful that they can see a recovery.

He said that “a lot of risk practices are now making money” but that many advisers are also “calling out for efficiencies” from insurers to help them increase their profitability, following the cut to commissions.

“As an organisation, we’re keen to see risk evolve because I think it does help advice, and we want to see it get back to at least the days of 2018 with the onset of the royal commission, which is a target of $500 million,” Woods said.

“Now to do that, you’ve got to look at the holistic advice space, risk specialist space, and the big unknown is how the Quality of Advice Review (QAR) is going to help the unregistered advisers or the inactive risk advisers to actually start writing risk.

“And there are solutions coming into the market but there are solutions that insurers should be adopting already that advisers are ready for.”

Looking forward, Woods laid out a roadmap, from the report, for reaching the $500 million target.

The report explained that a number of strategies are needed to help the risk advice industry get back on track, such as the adoption of new technologies to improve efficiency, thus fuelling higher profits.

The findings revealed that 64 per cent of advice practices are already using “digital applications to enhance efficiency or reduce costs”, with risk focuses investing significantly more in technology. They are also 53 per cent more likely to experiment with AI than holistic advisers.

A higher technology adoption rate was also linked to greater profit margins, with those within this category operating at margins 20 per cent or higher, compared with 18 per cent for those not. The report also highlighted the potential use of sophisticated technology to help bring down the cost of insurer underwriting and service costs.

Other potential strategies included group marketing, business development manager (BDM) and shifts to risk writing practices and Australian Financial Services licensees.

With the QAR, or what is now the Delivering Better Financial Outcomes (DBFO) bill, changes are looking like a close reality now, as the report speculated on some of the changes that could help get the risk advice industry back on its feet.

“A successful QAR life insurance proposition may be the integration of multiple insurers’ products under one platform. Investment platforms or new players, such as the Neos platform or soon-to-be-launched LifeBid, can offer a unified insurance experience with access to various products and underwriting assessments,” the report said.

“QAR has the potential to bring more consumers to both insurers and risk advisers through tight collaboration.”

Overall, the primary focus for the industry, according to the report, should be a greater adoption of sophisticated technology and inter-industry collaboration to help improve efficiency to drive greater profitability for those still operating within the risk space.