With pressure from consumer groups mounting to remove any exemption life insurance providers have for life insurance, industry leaders in the risk space have argued it could decimate the industry.
Earlier this month, Michelle Levy recommended that life insurance commissions stay in place at the current level, which are capped at 60 per cent upfront and 20 per cent ongoing.
Some in the industry like ClearView have called it appropriate, but Synchron director Don Trapnell tells Professional Planner the recommended 60/20 rate is not sufficient to provide advice on an “economically sound basis”.
“It’s a step in the right direction that Michelle Levy is recognising that commissions are a reasonable form of remuneration for advisers and one that consumers accept,” Trapnell says.
Association of Financial Advisers chief executive Phil Anderson says giving the clients the choice to pay via fee for service or commission is the right approach and he does not understand why consumer groups want to take choice away from clients.
“This is a really important debate and the consequences of a ban on commissions are so stark that going blindly calling for it without understanding or considering the consequences is a dangerous policy position to take,” Anderson says.
Additionally, the AFA issupportive of Levy’s proposals for life insurance but sought clarification from Levy over the fee consent requirement which he says will become part of law rather than practice.
“The confirmation we got that was it was only intended to be a once-off, it wasn’t annual [commitment], which was the source of anxiety for a lot of advisers,” Anderson says.
“Importantly part of the value proposition is the adviser will be there at the time of claim so there’s some fundamental differences.”
The Life Insurance Framework review, which had been incorporated into the advice review, found although the quality of risk advice improved between 2017 and 2021, it was difficult to conclude it was because of the LIF reforms.
“This improvement could also be attributed to a number of other factors, such as the implementation of the professional standards, which introduced education and training standards for financial advisers,” the review said.
Financial Planning Association CEO Sarah Abood says the consumer groups are not acknowledging findings that the quality of advice has improved substantially over the period of the LIF Review.
“We’ve seen that fewer Australians are covered,” she says noting there has still been unintended consequences of LIF. “New advised life insurance business has halved over that period.”
Abood says the critical element of LIF was the standardising of commissions.
“What that does is make sure that advisers don’t have any incentive to recommend one product or provider over another because they’re all paying the same and the adviser can select the product that is best for the client,” Abood says.
Strong opposition
Along with Levy’s proposal, insurance commissions have government support after financial services minister Stephen Jones changed his stance on the issue earlier this year.
However, the minister will receive serious pressure from consumers groups with a joint consumer submission to the review featuring contributions from Choice, Consumer Action Law Centre and Financial Counselling Australia calling for the end of any exemptions to life insurance.
Choice head of policy and government relations Patrick Veyret cited evidence from ASIC that showed 40 per cent of life insurance is “in breach of the law”.
“This is not good enough; it means that 40 per cent of the advice people receive does not match their needs,” Veyret says.
“Insurance is an extremely complex product and being miss-sold can have serious ramifications.”
Instead, Choice has stuck to its recommendation that all commissions be scrapped and has called on the government and advice review to do so.
“We need a holistic review about how to protect people in the event of injury and illness,” Veyret says. This solution includes direct life insurance, group life insurance, the social safety net and the NDIS.”
Veyret says its important these solutions work together to create the best outcome for families across Australia.
“Direct life insurance plays a role, but consumer groups think commissions distort that role and lead to poor outcomes for many people,” Veyret says.
‘Not the panacea for all ills’
Trapnell says relying on group insurance will not solve Australia’s insurance problem, arguing it insufficiently covers consumers, premiums can be changed on a whim and it does not take into account individual consumers’ personal needs.
“Group insurance is not the panacea for all ills for the Australian public and providing protection,” Trapnell says.
“Group insurance has its place, but the very nature of group insurance is the product itself is not guaranteed to be around tomorrow.”
Trapnell echoed the points made by Anderson and arguing consumers should have the choice to purchase insurance via a fee for service to the adviser or commissions.
“The consumer is not prepared to pay the cost of providing advice on a fee for service basis,” Trapnell says.
Trapnell alluded to studies from the AFA that found consumers were unwilling to pay anything to up to $300 for advice when the cost of advice was between $3,000 to $5,000. “There’s a total disconnect there,” Trapnell says.
Anderson says there is sufficient evidence showing when a client is in a situation where they need more cover than they currently have in a group super scheme that it is substantially cheaper to get cover as an individual advised client rather than to increase the cover in their existing super fund.
“Not only are the products better, but they’re actually – in many cases – substantially cheaper and the client gets advice,” Anderson says.
“If the client is cognizant of the need for more insurance and they decide to take action, it is better for them to get advice on an individually advised product.”
Once again, Choice shows their total ignorance and blinkered approach, in total contrast to how the real world operates.
Choice ignore facts, they ignore what people want and whom they purport to represent.
For a long time, Choice have lived in their own “Utopian” world and have very little credibility due to their ideologies and a refusal to acknowledge what is correct.
Choice need to be held to account and unless they start recognising they have many people in their little hub who are incapable of good journalism and insufficient common sense to recognise good policy from bad policy, then they need to be removed as a source of information.
There is only so much rubbish we should be subjected to and Choice are being given WAY too much airtime for consistently BAD print.