Ease of execution largest barrier to risk advice, not commissions: Report

According to research firm CoreData’s Future of Advice report, commission levels are not at the top of the list for what would need to change in order for those that currently don’t write much risk to start writing more.

Speaking with ifa, CoreData chief executive Dean Thomas explained that the research firm is seeing a continuing trend of fewer advisers providing risk advice, with the report finding that 75 per cent of advisers write 20 policies or less per year.

“The reason for that is, let’s be very clear: a lot of the holistic advice writers, or the advice writers, are moving away from insurance,” Thomas said.

“Interestingly, when you ask them what changes would need to be made for them to write more insurance, very little of that cohort talks about changes to commissions. I think the horse is bolted in relation to that.

“It’s not a commission component, per se. It’s the time it’s taking to be able to write insurance, go through the underwriting rules, have the knowledge around the complexity of some of the insurance policies, the views of where they are today, what would need to be made tomorrow, the extensive levels of underwriting that’s needed. You’re seeing advisers basically saying it’s too difficult for us to do that.”

If the insurance industry wants the numbers here to change, he said, there needs to be a greater focus on the areas that advisers highlighted in the survey.

Namely, 63 per cent of respondents identified underwriting rules as a barrier to writing more risk, 42 per cent want simpler product design, 41 per cent want quicker policy approval, and 37 per cent want better software integration.

On the other hand, just 11 per cent noted higher commissions as an area they want improved, while just 3 per cent said there were cost-related barriers.

“There are two things occurring,” Thomas said.

“They’re either only writing it if they see it as an absolute desperate need, and they really need to keep the client happy. That’s why there’s low level of insurance being written. Or what we are seeing more and more is extensive referral arrangements to specialist risk writers out there in the marketplace.

He added: “Traditional advisers find it too much to learn, takes too long, and they don’t want to disturb that relationship. So, they’re outsourcing to specialist writers.”

Another challenge for the risk advice sector, Thomas said, is the danger that advisers retiring poses to the specialist risk market.

“That specialist writing market is very, very small, and what happens when they start to exit the market? A lot of those people are your old, traditional risk writers, so they can be a little bit older,” he said.

“We’re not seeing a whole range of people coming into the market saying, ‘You know what, I’m going to put my hand up, I’m starting my career in advice, and I’m just going to do risk advice’. We’re seeing that that supply really starting to contract extensively.”

Last year, Adviser Ratings found that half of all life policies were written by just 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.

“The retail life industry is currently surviving on a small cohort of advisers to bring in new business,” Adviser Ratings said at the time.