Coalition MP Bert van Manen and former NSW Premier and Labor party figure Nathan Rees have put their support behind ending caps of risk insurance commissions.
The Life Insurance Framework, introduced by the former Coalition government, introduced a commission cap of 60 per cent upfront and 20 per cent ongoing.
But almost eight years ago since LIF was introduced, Nathan Rees, the former NSW Premier who is now MetLife Australia head of external affairs and public policy, argued in favour of having no commission caps for life insurance advisers at the Professional Planner Advice Policy Summit.
Rees, who is understood to be influential in the politically left faction of the Australian Labor Party, said he wanted to abolish the commission caps on life insurance citing it as a key reason there was a decline in adviser numbers.
“Getting rid of caps is part of making things more affordable,” Rees said. “It’s not a silver bullet, but it’s part of a suite of solutions.”
Rees said he could “not think of another legitimate product” through which the distribution of which has its price determined by the government.
Shadow Minister for Financial Services Luke Howarth had told the summit during dinner on Monday night that he would “look at” lifting the caps on life insurance commissions.
But former financial adviser and current Coalition MP Bert van Manen agreed with Rees about taking it a step further and removing the cap all together.
Van Manen questioned why there was a commission cap at all if other sectors such as investment advice do not have one.
“You charge a fee that you agree to with your client – why isn’t that the same on the insurance side, whether it’s a fee or whether it’s commission?” van Manen said.
Support for higher cap
A Slido poll during the discussion asked the diverse room of financial services representatives what the caps on life insurance paid to advisers should be. Over half of voters (53 per cent) were in support of at least an 80/20 model with only 15 per cent having voted for the current model of 60/20. 21 per cent voted for a 90/10 model with 12 per cent of voters said commissions should be banned.
Van Manen said an 80/20 model would be a “starting point” but the ultimate goal “would be to do away with the caps altogether”.
“I spoke against the original legislation when we introduced it back in 2015,” Van Manen said, referring to LIF.
“Disappointingly, I lost that argument. But many of the arguments I made 10 years ago are now coming to fruition.”
He said the advice industry had good models to look at such as “accountants, doctors, lawyers and their professional organisations and structures”.
Perera Crowther Financial Services director Sam Perera, who was also the final national president of the Association of Financial Advisers, said the 80/20 model “probably makes the most sense”.
Perera said the current state of the life insurance sector necessitates a review of the remuneration model.
“The sooner we accept that, the sooner we can get on with designing the framework that works for everybody,” Perera said.
All business models
The Labor government’s Delivering Better Financial Outcomes reforms will see the introduction of a second tier of adviser that can give limited advice on APRA-regulated products.
Council of Australian Life Insurers CEO Christine Cupitt said that while CALI is supportive of the new class of adviser, she said the association “wouldn’t want to provide this service unless there are all the right consumer protections and guardrails”.
The association had still advocated for the introduction of the new class of adviser but Cupitt says the government to change the name to reflect they aren’t financial advisers.
“If we see some sort of combination of consultant, provider, agent [for a name]…we’d really welcome that,” Cupitt said.
Perera was also “very supportive” of the implementation of NCAs but was cautious they should not start providing advice until all protections are in place which takes time.
“Whilst I think it’s vitally important that NCAs and the ability to use NCAs is legislated and implemented as soon as possible, it takes time to build the systems and structures and processes to use that as a means of distribution to try and get more Australians insured and into the pool,” Perera said.
Cupitt said NCAs must be able to be used in all business models.
“For us, we’re starting with what our customers keep asking us for,” Cupitt said.
“They’re ringing in every day with simple questions about their life insurance, and they are asking for simple answers on the spot at no extra cost to them.
“That is what we envisage the new class of adviser doing in the life insurance context.”
