Two life insurers have acknowledged that the introduction of a three-year retention period will cause concerns for those providing risk advice.
Speaking to Risk Adviser, Zurich general manager of retail life and investments Philip Kewin said he understands the “angst” advisers have over a three-year “clawback period” in the recently proposed life insurance advice framework.
“What advisers are concerned about is the customer who has circumstances change and can’t afford their policy anymore, then the adviser is the one that is [affected] as far as the clawback is concerned,” Mr Kewin said.
“So the concern that they really haven’t got an income until the third year – I fully understand that,” he said.
Mr Kewin also acknowledged that with the introduction of a three-year retention period, there will need to be greater clarification over how a policy lapse is defined.
“[This is] because the biggest concern for advisers at the moment is they are completely on the hook for every potential consequence that could arise as far as business going off the books is concerned,” he said.
Insurers can play a greater role in ensuring clients stay on with a policy and reduce the chances of them looking to cancel a policy, he added.
Insurers need to upgrade policies and also address the increasing costs of premiums, Mr Kewin said.
Also speaking to Risk Adviser, ClearView managing director Simon Swanson said the ‘clawback’ period will present a “capital issue” for all advisers.
The introduction of this policy would also require careful risk management planning by advisers, he added.
“[This is] particularly in the case of key person insurance where changes to partnerships in companies' structures often led to the early lapsing of policies,” he said.
The introduction of a three-year retention period, however, is just one of the points within the newly proposed life insurance framework.
If mandated in its current form, the policy will mean that if a policy lapses within the first year, an adviser will lose 100 per cent of the commission earned on the first year’s premium; lose 60 per cent if it lapses in the second year; or 30 per cent if it lapses in the third year.