Insurer Metlife has detailed some of the key repercussions involved in banning life insurance advice commissions, which it says will drive up costs and reduce access to quality advice, as part of its 2021 Value of Life Insurance report
When the life insurance framework (LIF) laws that were overlaid on the industry in 2018 are reviewed by Treasury next year, Metlife says, several factors should be taken into account.
“Consumers will rely on off-the-shelf insurance products, which are not tailored to their financial and personal needs,” the report states, adding that consumers with lower economic means “will lose access to advice.”
“Most consumers will not pay upfront for advice if the financial product is subject to an underwriting process that could lead to them being denied access to the product,” the report continues. “This is different from investment products, which do not require approval to purchase the product.”
Consumers that are currently on claim will lose access to the support of their adviser, the report states. Without the advocacy of advisers, this could increase the mental health strain and lead to poorer outcomes for policy holders.
Underinsurance rates would likely increase, Metlife notes.
Advice businesses would also suffer tremendously.
“Many financial advisers’ businesses may become unsustainable, forcing them out of the industry and further reducing Australians’ access to advice,” the insurer says.
Presently only 27 per cent of people receive advice on their life insurance, the provider states. Reducing commissions further or banning them altogether would have a significant detrimental impact.