About this paper

This paper has been prepared by Ensombl as a resource for financial advisers, with the support of Australian life insurer TAL.

We would like to thank the following adviser and expert contributors:

Introduction

In recent years, life insurance, or risk, advice has undergone more change than almost any other aspect of advice.

The compounding impacts of changes driven by the Life Insurance Framework (LIF) and Hayne Royal Commission have seen a disproportionately large drop in the number of advisers actively recommending risk.

While the Australian Government accepted the QAR recommendation for commissions to continue to support consumer access to life insurance advice, advisers report that the current LIF caps on commissions remain a barrier to some advisers re-entering this space.

While it is increasingly clear that this level of commission challenges the viability of many traditional risk advice models, a cohort of forward-thinking advisers are taking a fresh perspective, finding innovative new ways to incorporate risk into their advice proposition in ways that are professionally and economically sustainable.

There are many different pathways to a sustainable future for risk advice, and in this paper, we draw on the insights, experience, and wisdom of five advisers and industry experts, with the aim of encouraging and guiding others who believe that protecting one’s wealth is every bit as important as growing it.

Risk advice – the 2024 context
The current context for life insurance advice is characterised by both demand side and supply side constraints.

Supply side – declining adviser numbers and remuneration caps
The contraction of adviser numbers has been well documented¹, with the current 16,000 registered advisers representing a decrease of more than a third compared to just three years ago.

However, the combination of commission capping and new educational requirements has seen a disproportionately larger impact on the number of advisers actively recommending risk.

As reported in Professional Planner, there are just 150 risk specialist advisers and 949 that were “largely specialised” in providing risk advice. Another 2,372 provided “some” advice on life insurance².

Figures from Professional Planner suggest the number providing any form of risk advice is actually larger, finding that 6,373 financial advisers wrote a risk policy in the first half of 2023. However, concentration is evident with fewer than 500 responsible for 50% of all new business³.

Demand side – underlying demand is strong
On the consumer side, there is every reason to believe the demand for advice generally, and risk advice specifically, is substantial.

Various studies have suggested anywhere from 25% to 40% (ASIC) of Australians intend to seek professional financial advice in the future⁴.

The drivers of life insurance needs are also resilient. Over 46% of Australians are aged 25 – 59⁵, the ages when life insurance need tends to peak.

Mortgage debt continues to climb, and each year we see in the vicinity of 300,000 births⁶ and 100,000 marriages⁷, suggesting the need for cover – and by extension, the need for professional advice – remains strong.

According to Deloitte’s 2023 ‘Mind the gap’ research, Australians are underinsured by as much as 60-80%, leaving $25 billion in potential claims on the table⁸.

 

Figure 1: Australian population by generation (2021)

Source: ABS⁹

Affordability of life insurance advice is still an issue
A significant barrier exists, however, between consumer demand and their willingness to pay, for advice.

As reported by the AFR, this barrier remains an issue with estimates that around two-thirds (64%) of consumers were unwilling or unable to pay more than $500 for advice, well short of the $3,710 median mentioned¹⁰. Various previous studies suggest that, in relation to life insurance advice specifically, the appetite for fees is even lower.

Closing the risk advice gap
With consumer need and demand for life insurance advice remaining strong, and the cost of providing advice leaving it out of reach for many, action must be taken to ensure the advice and insurance coverage gap doesn’t evolve from social policy challenge to an economical disaster.

The key is to find ways that life insurance advice can be offered in a more sustainable way, making it more affordable while ensuring advisers are still able to provide advice in a way that is financially viable – at the time of delivery and over the long term. Loss-leading strategies are unlikely to be truly sustainable.

Adviser insights reveal different paths to sustainable, future-proof risk advice
For the purposes of this paper, we interviewed several advisers who are all actively providing life insurance advice, and are doing so in a way that is affordable to their clients, and profitable for them.

While they have all taken unique pathways to sustainability, there are several common, high-level themes that characterise these different pathways:

• A focus on efficiency
• An advice philosophy that sees life insurance as a foundational aspect of advice
• A financial/remuneration framework for risk advice that is profitable yet affordable to clients

Efficiency has been a key advice narrative for several years
Efficiency has been a key narrative in advice for many years, but particularly since FSC/KPMG research¹¹ released in 2021 found that the average cost to deliver advice was almost 50% more than the average advice charged. In other words, initial advice was a loss-making proposition.

To the extent that compliance related red-tape is seen as a major contributor to the cost of providing advice, various representations have been made to the government on the potential impact reducing or removing this red tape could have on the cost of delivering advice.

Indeed, the FSC, with reference to a simple seven stage advice model, shown below, suggested several reforms to streamline advice, including changes relating to SOAs, disclosures and authorities, and safe harbour steps.

Figure 2: Seven stages of advice

Source: KPMG

Quantifying the potential outcomes of QAR
At the time of preparing this report, the Federal Government had released its response to the QAR recommendations. This response included proposals to replace the SOA with a simpler record of advice, scrap safe harbour steps, as well as other disclosure and process simplifications.

To the extent many of the QAR recommendations are similar to the streamlining proposed by the FSC in their 2021 paper, the modelling done by KPMG for that paper may serve as a useful proxy for the efficiency savings that may be possible once the Government’s reforms become law.

According to KPMG, the streamlining originally suggested by the FSC had the potential to reduce the time taken to produce and deliver advice by 30% to 32% (around seven hours), with an associated reduction in cost to serve of around 35% to 37%.

 

 

Despite the risk advice process’s complexities and extra steps (underwriting, pre-assessments, etc.,) which may lower the potential magnitude of the efficiencies calculated by KPMG, these estimates are still a useful quantification of what may be possible.

While the replacement of SOAs and other changes may be a welcome boon for advisers, those interviewed for this paper weren’t passively waiting for legislative changes, but taking a more proactive approach to streamlining their business models and processes.

Efficiency can be driven in different ways
While efficiency can be driven in many different ways, several in particular are commonly used by advisers, in one guise or another:

• Specialisation
• Outsourcing
• Using innovative new technologies

SPECIALISATION

Specialisation as a driver of efficiency
None of the advisers interviewed for this paper were risk specialists in the traditional sense.

Surviving as a standalone risk specialist will remain challenging under a 60/20 commission regime unless you have the advantage of large scale, deal exclusively with clients paying high premiums, or have cracked the code of charging an advice fee to supplement commissions.

However, specialisation within a holistic practice, working in collaboration with other advisers to deliver a total advice solution, is increasingly common and is associated with significant efficiency benefits.

The concept is simple, the more a person repeats a task, the more they become familiar with it. Repetition over time makes them able to perform tasks faster, and more accurately.

There is extensive academic evidence demonstrating the degree to which specialisation can drive efficiency, of this effect, including studies suggesting that every time staff on an IT service desk doubled their problem-solving experience, problem-resolution times reduced by 6.7%¹². Similar results have also been found across areas as diverse as banking and cardiothoracic surgery.

 

 

Benefits of having risk specialists within a holistic practice

In a life insurance-specific context, specialisation drives efficiencies in several ways:

• Life insurance products can be complex and highly technical. Stronger knowledge of product features and guidelines removes the need to seek technical support or analyse research ratings.
• Specialisation allows advisers to become more confident as field underwriters, and skilled at identifying potential challenges relating to client’s health. This allows advisers to set client expectations earlier in the process and avoid rework.
• Building relationships with underwriters, and understanding the underwriting philosophy and risk appetite of insurers in different scenarios, can reduce time spent on pre-assessments.
• Data previously published by Riskinfo¹³ showed how time-consuming some claims can be. 75% of claims took more than 11 hours to manage, and one in five claims took more than 30 hours. Understanding the claims process and requirements can significantly reduce this time.

 

OUTSOURCING AND OFFSHORING

Outsourcing is becoming increasingly popular among advice practices. Indeed, AdviserVoice recently reported that the average practice now has the equivalent of one outsourced staff member for every six internal team members¹⁴.

All the advisers we interviewed either already outsource, or are planning to outsource aspects of their advice business. In three-quarters of cases, the outsourced provider was offshore.

Functions commonly outsourced to third parties include specialised capabilities such as:

• Paraplanning
• Compliance
• Investment management
• Technology management
• Client administration
• Marketing

While cost reduction (allocating tasks to resources who can perform them more cheaply) is undoubtedly the main reason advisers outsource, there are other associated benefits, including:

• Freeing up the adviser to spend more time building and maintaining client relationships.
• Outsourced functions being performed to a higher standard, leading to better client outcomes and greater client satisfaction.
• Lower error rates and less rework.

Different types of outsourcing

In its purest sense, outsourcing simply means allocating to others, tasks that would otherwise be performed within a practice. In a broader sense, this can also include ‘outsourcing’ via automation, outsourcing tasks to life insurers, and even clients.

Outsourcing to external specialist resources
Over the last decade or so, practices have increasingly been outsourcing aspects of the advice value chain. As the trend away from large institutional licensees to smaller and boutique licensees continues, outsourcing is likely to become even more common, with smaller practices lacking the scale to employ specialised resources in-house.

Services outsourced include those that could be performed better by external resources such as investment management and marketing, and those that can be performed more cost effectively, including client service.

Paraplanning was one of the earliest functions to be outsourced, for capability and cost reasons. It was recognised early on that an adviser who could charge themselves out to clients at $300 or more an hour, shouldn’t be performing a task that could be outsourced for $100 an hour or less.

When it comes to client administration and other tasks that – theoretically – would fall within an adviser’s capability, this cost difference can be even starker.

The potential for cost savings is greatly amplified if the outsourced resources are offshore.

Labour cost differentials between Australia and the Philippines – where many of these providers are based – can be significant.

Indeed, in the experience of the advisers interviewed for this paper, the potential savings in labour costs by using offshore resources can range from 30% to as much as 70% of the cost of a domestic-based equivalent.

 

 

 

Early concerns with offshoring have largely dissipated
In the early days of outsourcing, many advisers had a range of concerns, especially outsourcing using offshore providers.

As a profession that has relationships at its core, the inability to be physically in a room with someone can, for some advisers, be an insurmountable barrier to relationship building. In this context, offshoring felt like a bridge too far for many. How can I trust them? How do I talk to them? What if something goes wrong?

One of the positive legacies of COVID was to accelerate the adoption of virtual and video communication for relationship-based service providers, including financial advice. As video meetings and working from home become commonplace, communicating with a resource via video has been normalised, and geography is not perceived as the barrier it once was.

Other concerns revolved around perceived data security risks, the challenges of operating in differing legal jurisdictions, and governance concerns more broadly.

In reality, many of these concerns are no longer valid.

 

 

Many offshore providers have world-class governance
Offshore service providers now offer high levels of service and robust governance.

Many of the larger providers of offshoring services to Australian advisers are Philippines based, but were founded and still managed by Australian advice experts. As such, their governance frameworks and service standards are often far higher than many small Australian-based advice practices would be capable of.

One such player is VBP, who summed up their approach to data security and governance in this way:

“VBP prioritises data security by implementing robust measures that safeguard sensitive client information. We have comprehensive data governance frameworks, employ stringent access controls, and deploy advanced encryption techniques to protect data. We are certified against the ISO27001 standard and ensure customer data is stored in Australia. Additionally, we conduct regular security audits and educate employees on data privacy best practices to foster a culture of security awareness.

VBP has invested heavily in best practice governance, and recently earned its BCorp certification, a designation that a business is meeting high standards of verified performance, accountability, and transparency on factors from employee benefits and charitable giving to supply chain practices and input materials.” Shaun Nesbitt, Chief Information and Digital Officer, VBP

 

 

Specialist outsourcing agencies
While some advisers choose to deal directly with offshore providers, for smaller practices, the logistical challenges associated with selecting and managing an outsourced provider can be problematic. For this reason, some choose to work with locally based outsource managers, who can support advisers throughout the process, effectively acting as the intermediary between the outsourced service provider and the adviser. While this can provide peace of mind and take a weight off an adviser’s shoulders, it comes at a cost.

Digital technology innovation – driving efficiencies, improving the client experience

Technology continues to reshape financial advice, with its ability to speed up tasks, drive down costs, and provide a more seamless client experience.

Clients want to engage digitally
The digitalisation mega-trend has changed the way clients interact with products and brands. As consumers, we are empowered to research, compare, and ultimately buy everything from groceries to cars via digital channels.

For businesses, this is a double-edged sword. While digital channels are cheaper to support, consumer expectations about turnaround times, service standards and the quality of the mobile experience are increasing every day, and financial services brands are being compared not with other insurers or financial advisers, but with other categories such as retail.

This is especially true for younger clients – prime life insurance buyers. According to a recent survey of Australian millennials by Swiss Re¹⁵, more than half of the surveyed group prefered online transactions for insurance purchases, compared to 19% favouring purchases through superannuation and 17% seeking a mix of independent research and professional advice. The preference for online channels isn’t about anti-advice sentiment, it’s about convenience and responsiveness.

In other words, your external digital game must be strong.

 

 

 

Technology and digital innovation as efficiency drivers
The cost to serve in advice has been in the spotlight for some time now, and driving it down is central to making advice more accessible to consumers, and more sustainable for advisers. In this regard, the role of technology in driving down costs across the advice value chain has been a central narrative.

There are many aspects of the advice value chain that are ripe for automation, including:

• Appointment booking
• Client fact finds
• Client reviews
• Revenue management
• Compliance (via RegTech)
• Service personalisation

Breaking down the initial production of advice into smaller steps, we can see even more scope for automation, including SOA generation, research and risk profiling.

While the advisers we spoke to are all advocates of using technology to drive efficiencies and customer experience, recent research by IRESS and Business Health¹⁶ showed – in some parts of the process at least – advisers are leaving many efficiency opportunities on the table.

Only around 40% of advisers are using online fact finds most of the time, and one-quarter of advisers still haven’t fully automated their SOA generation process.

Digitalisation can save six hours per client
Estimates vary, but typical figures suggest the use of online fact finds alone can save advisers 1.5 hours per client, and in conjunction with other digital tools, a saving of 5.5 to six hours per client across the advice process is possible. Advisers making those savings can decide whether to take them as higher margins or pass them onto clients in the form of lower fees.

The advice technology space sees constant innovation, opening up new opportunities to automate tasks in a way that not only drives cost savings but also more consistency, quality and accuracy of execution.

Smaller and boutique practices have a unique opportunity to build their own technology stack, no longer forced to use software and hardware stipulated by their institutional owners. As a result, the broader market is embracing new solutions, and the Ensombl platform sees a lot of discussion about technology integrations.

 

 

AI will create new possibilities for advice practices
Further innovation in the AdviceTech space is assured, with Artificial Intelligence, in particular, likely to revolutionise advice practices. Netwealth’s 2023 AdviceTech report¹⁸ found that AI was the technology advisers expected by advisers to have the most impact on their business over the next five years.

 

 

Figure 2: technology advisers expect will impact advice the most over the next 5 years

Source: Netwealth18

Risk specific technologies
Aside from risk research tools, the advisers interviewed were not using any risk specific advice software.

They all mentioned their enthusiasm for more automation in the two biggest pain-points within the risk advice process – pre-assessments and in-force amendments.

The idea of a fully automated and standardised pre-assessment process – where information could be submitted once, in a standard format that was accepted by all insurers – was cautiously welcomed for its efficiency potential, although it was noted that building relationships with individual underwriters was still critical.

 

 

In-force amendments – a process ripe for digitalisation
The cost-of-living challenges currently faced by many households – especially those with mortgages – have seen a dramatic increase in the volume of in-force amendments, with many policyholders thankfully preferring to (temporarily) reduce their sum insured rather than cancel their cover altogether.

In-force amendments were universally seen as the biggest pain point within the risk customer lifecycle, almost always involving manual, rather than automated, processes.

It was recognised that the streamlining of this process was a priority for most, if not all, insurers, with the potential improvements in both efficiency and client experience likely to be significant.

 

 

Redesigning process allows bigger gains from technology
Automating a bad process still leaves you with a bad process, which is why prior to embracing automation, advisers and practice owners should revisit and objectively assess existing processes to identify opportunities to streamline, or even cut out processes altogether.

Areas to investigate include document production, obtaining client signatures and authorities, fact-finding (including health details), and reviews.

The trait shared by all advisers participating in this research was the preference to gather as much health information as early as possible in the process, to help narrow down insurer selection and set expectations with the client about further information likely to be requested, and the possibility of non-standard terms.

 

 

Technology allows you to share the workload with your clients
Giving clients a more active role in the risk advice process has two important benefits:

• It creates more involvement in, understanding of, and engagement with the advice process
• It reduces the workload of the adviser.

The concept of ‘giving clients homework’ is understandably popular with many advisers, especially in the early stages of advice.

Having clients complete their own online fact finds – and requiring it be completed before an appointment can proceed – can create massive efficiencies, by reducing the time spent by the adviser on this process, reducing the incidence of unproductive meetings because the client is unprepared, and in helping the adviser target their follow up.

Three of the four advisers interviewed used a true online fact find process.

Online appointment booking systems, where clients can choose from available time slots, is another common example of having the clients do some of the work themselves.

 

 

Video meetings
Video meetings can be seen as a form of outsourcing to clients, as you are effectively making their home the meeting venue. Aside from the potentially significant savings from not maintaining a large office space with meeting facilities, video meetings have both efficiency and client experience benefits.

For the adviser:

• More meetings can be held in a day
• Less meetings get cancelled because of sick children or bad weather or start late because of bad traffic
• The client is generally more relaxed and open because they are in their own environment
• Clients have immediate access to any information the adviser might need

For the clients:

• The meetings are less stressful as they don’t have to worry about what to wear, what route to take, where to park, what information they need to take
• They are in the comfort of their own home

Three of the four advisers we spoke to use virtual meetings almost exclusively. One offers in-person meetings but at an extra cost to the client. One also provides a summary of the SOA presentation in video form.

Three of the four effectively operate as virtual practices.

 

 

Tele-underwriting
Outsourcing the completion of the personal statement via ‘tele-underwriting’ comes with both efficiency and compliance benefits (for example, the risk of non-disclosure). Some advisers however still prefer to undertake this process with their clients, viewing it as an important value add, and a key opportunity to build client rapport and trust.

 

 

Hybrid advice – the future?

There has been a widely held assumption that the consumer preference for digital engagement with financial services providers would pave the way for robo-advice to become a dominant force. However, this has not proved to be the case, with evidence suggesting consumers still prefer some degree of human interaction.

In Australia, research by Investment Trends¹⁹ found that two in three Australians were open to using a digital advice tool to plug advice gaps, but ‘most would prefer to use in conjunction with some form of human interaction’, while a study by Griffith University researchers, Man and Machine²⁰, found that consumers had little faith in investment advice involving amounts over $1,000.

Increasingly, it is becoming clear that hybrid digital advice – a combination of digital and in-person advice – is likely to be the way of the future, with advisers incorporating elements of digital advice into their offering. This would make it more economical to provide advice, especially for lower value and simpler advice cases, as well as providing a more contemporary (i.e., digital) customer experience.

In late 2022, global banking giant, JPMorgan, noted that pure digital financial advice was starting to lose traction in the United States as consumers warm to a hybrid advice model coupling human advisers with digital capabilities²¹.

Nick Eatock, CEO of UK digital advice platform, Intelliflo, told the Australian Financial Review that global momentum was shifting to a hybrid format.

“That hybrid-type approach is the winner, we think, of the investments that have been made in robo-advice. That’s the next step forward, and we’re seeing that certainly in the UK and US already.”²²

Ultimately, a sustainable future for risk advice isn’t simply about efficiency
For all the innovative ideas and different approaches to business models, technology, remuneration frameworks and resourcing, these factors can be seen as lower-order enablers of a sustainable future for risk advice.

At its core, risk advice – more than any other aspect of advice – relies on relationships. The relationships between the adviser and the insurer, the adviser and the underwriter, and the adviser and claims manager, will do more to drive success within risk advice than a process that is ultra-low cost but lacks the human element.

The two sides need to work hand in hand.

Advisers who fundamentally believe in the importance of protecting wealth as part of the advice proposition, who can employ best practices in the design and resourcing of their business, and who are committed to building deep connections with their clients, will always be able to create a sustainable future for life insurance advice within their practice.

 

Summary

In recent years, life insurance, or risk, advice has undergone significant change. In line with the recommendations of the QAR, the Government has given a tick of approval to the continuation of life insurance commissions, offering a degree of certainty to advisers. However, the level of commissions remains a barrier to some advisers operating sustainably in this space.

A new crop of advisers is taking a fresh perspective on risk advice, taking innovative approaches to incorporate risk into their advice proposition in a professional and economically sustainable way.

While there are many different pathways to this sustainable future for risk advice, there are several common, high-level themes that characterise them:

• Efficiency, driven by strategic outsourcing, process optimisation
• The adoption of innovative digital technologies that can drive efficiencies and improved client experience
• An advice philosophy that sees life insurance as a foundational aspect of advice, and
• A financial/remuneration framework for risk advice that is profitable yet affordable.

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Important information
This information has been prepared for use by licensed advisers in their professional capacity. Any advice is general in nature only and does not include legal, product or tax advice. While TAL Life Limited (ABN 70 050 109 450 AFSL 237 848 TAL Life), part of the TAL Dai-ichi Life Australia Pty Limited (ABN 97 150 070 483 group of companies TAL), has sponsored this paper, this content has been prepared solely by Ensombl. Unless stated otherwise, all opinions expressed in this paper are the opinions of Ensombl. The views expressed in this document by persons who are not representatives of TAL are their own, and do not necessarily represent TAL views.

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