The proposed new Life Insurance Framework is producing some questions from advisers. In summary, the LIF caps first year commissions at 60% from July 2018, and ongoing commission at 20% from January 2016. At present first year commissions can be as high as 120%. If a policy lapses in the first year up to 100% of the first year commission will be clawed back. The changes kick in over a three transition period, starting 1 January 2016. So they are actually going to start pretty soon: in just four month’s time. The changes were proposed by the Trowbridge Report and have been settled with the three main industry groups, and follow on from a critical ASIC report which observed a link between high commissions and poor advice and in particular the churning of policies. You can read a more detailed explanation of the new rules here: New Life Insurance Framework Announced. What is Dover doing? In summary, Dover does not know anything about the new Life Insurance Framework that is not already in the public domain, and is not involved in the consultative process/lobbying process bubbling along in the background. It’s not what we do. Dover is not contemplating any changes to its systems and believes the changes will just work through naturally and nothing specific needs to be done. What should you be doing? You should be asking yourself how these changes will affect your revenue and your valuation model. On their own, the effect should be negative. But it’s probably not as simple as that. An article by Kate Cowling on the Financial Review on Monday 7 September tipped that

Risk advisers are expected to desert the industry en masse in the next three years, as the proposed commissions regime is considered untenable for both independents and the next generation of planners.

Some will leave, but I doubt there will be a mass desertion. More likely most advisers will become more efficient at handling insurance applications, to reduce the average time taken to complete an application. Others will create new income streams from new client offerings to compensate for the drop in commission income. Dover’s short and simple risk insurance SOAs will be a help here: the SOA takes less than an hour to create and it works a treat. Help is also available in our Vietnam back office. Our team are expert in risk insurance applications, and can handle your insurance application for you for a fixed fee of $500 per application (no fee if the application is not accepted). Contact Florence Tee on florence@dover.com.au for more information and details on how we can help you make your risk insurance SOAs and applications more efficient. As usual in a capitalist world, the market will reward the efficient operator. If your competition cannot evolve/compete their clients will come to you and you will find that you are busier and more profitable than ever before. You just have to make sure you evolve and don’t stay locked on the old ways. Don’t put your head in the sand and hope the problem goes away. Evolve and prosper.