IP changes another reason for quality advice

BY Richard Hopwood, State Manager for QLD, PPS Mutual Insurance 

At the time of writing, the previous Coalition federal government’s review of the Australian financial advice sector was receiving its final submissions regarding ways to improve the access and affordability of quality advice for more Australians.

The advice sector has been subject to a heavy pattern of significant reforms. Indeed, the timing of this Treasury review of the financial advice sector comes at a time when many advisers specialising in the wealth protection aspect of their client’s lives are struggling.

Struggling with the complexity of regulation, struggling to interpret the impact of that regulation on product design, and struggling with the potential for an increasing risk of unintended consequences for them and their clients.

In fact, among the issues being looked at by Treasury is the extent of these unintended consequences, as well as ways to streamline and simplify regulatory compliance to reduce costs and duplication and how to improve the clarity and availability of documents provided to consumers.

Against this backdrop, the income protection (IP) market represents a microcosm of a broader set of issues for advisers, where the challenge to understand and safely navigate change is quite evident.

Advisers need help.

The IP market has been under some strain, yet the value of this type of insurance in the lives of consumers must not be forgotten.

For many clients, income protection is a safeguard to protect their ability to earn an income in the event of an injury, disability, or sickness; and financial advisers play an integral role in helping them select the right cover as well as manage any potential risks like a product’s affordability or claims experience.

2022 has been a challenging year

Reform comes to the advice market by way of a regular series of acronyms. FASEA and LIF are but two of the most recent and far-reaching.

This year particularly has seen risk advisers absorb the consequences of the prudential regulator’s reforms seeking to ensure the sustainability of IP offerings. Among those challenges is affordability: increased premium levels have been a hallmark of products across the industry in the IP space.

On top of the structural and administrative changes, the most complex product that financial planners advise on, income protection, has seen the greatest change in a generation with no common solution posed by any of the insurers.

Effects on insurer behaviours and advisers

Insurers have tried to educate advisers in the nuances of their new income protection offerings.

Some insurers go further again providing courses and seminars aimed at coaching advisers (specifically those specialising in risk insurance) towards the exam, although this is the exception rather than the norm.

Current university courses also lack the enablement of specialist insurance advice for new entrant advisers.

Undoubtedly, specialist insurance advice for new entrant advisers is an area the industry should place more attention on.

Unfortunately, a lot of courses concentrate on the legislative side of risk insurance, rather than practical implementation in the real world for clients.

Despite most insurers adopting the requirements set out by APRA and implementing new income protection offerings designed with long-term sustainability in mind, little has been done in reality to help advisers navigate the regulatory minefield they are faced with.

As a result, advisers are overwhelmed and increasingly becoming mentally and emotionally burnt out.

While an insurer cannot manage an adviser’s compliance burden directly, they can attempt to make the process of providing insurance advice less grievous from their end.

So, what can be done?

From an existing business point of view, it is imperative the insurers spend more time concentrating on supporting advisers.

Advisers have struggled through some recent tough times and the industry as a whole must establish better processes that make it easier for advisers to access policy information, alteration quotes and update details online to allow them to service and administer the policies of more clients in less time.

Enabling smoother policy management will drive greater efficiencies for an advice practice and insurer. Easy alteration of benefits and self-service administration of policies would reverse the ever-increasing lapse rates – a scourge to the profitability of any insurance business.

By working together to provide education and technical resources to risk advisers, we have the opportunity to grow our industry again.

Looking to the future

We have seen so many changes happen one after the other, and we are currently in the midst of yet another industry review, the recommendations from which will be delivered later in 2022.

I only hope the Treasury recognises that the advice industry is being overburdened with regulation and is unable to provide advice to as many people who genuinely need it.

It is hard to predict what will happen in the future of our industry, but the wheels are in motion for a new sustainable era.

I have no doubt that as companies better understand the customer experience, adviser experience, and the claims experience, that these products will continue to evolve over the years ahead.

While all the new income protection policies in the market have their differences, they will ultimately function as intended and provide vital financial security to policyholders in their time of need.