Higher costs, lower revenue: Bring on the FSRB

Life insurers will take a hit to the bottom line if the Financial Services Reform Bill survives the impasse between the Federal and State Governments.

But they are still welcoming the changes expected to be brought about by the reforms, according to AXA distribution executive Peter Driscoll.

Speaking at the recent Rice Kachor Risk Seminar, Driscoll explained that life insurers are bracing for increased costs and reduced revenue in the wake of the reforms.

"But in the long-term, I think it ensures the long-term viability of the industry," he says.

One of the biggest sources for loss of life insurance sales will be the end to the multi-agent structure for life insurance advisers. Driscoll says multi-agents are the primary sales force for life insurers, making up at least 50 per cent of sales at AXA.

Multi-agents will be forced to become proper authority holders under the new regime or get out of the industry altogether, Driscoll says.

"Many of the multi-agents are threatened by change and will choose to simply leave the industry. We shouldn't forget that these advisers are some of our biggest writers and there is no-one coming through to take their place."

Also, the onus on the licensee of advisers under the new regime mean that a number of life insurance company owned dealer groups will embrace its biggest business writers as proper authority holders and "bid a tearful adieu" to the others.

Revenue will also be lost by the increasing onus on advisers to improve the documentation at the point of sale. Advisers will have to spend more time filling out documents which means less selling time.

There is also increased compliance costs for life insurers due to the increased point of sale disclosure requirements because they will need to more thoroughly supervise the paperwork of their advisers.

The vexed question of commission disclosure will also put pressure on margins. Driscoll says commission disclosure will send more life agents away from the industry But, at the same time, more scrutiny on commissions may attract those advisers who have shied away from offering life insurance products to their clients due to the perception that it was more about sales than financial advice.