Leave insurance commissions alone: ClearView

While the Life Insurance Framework (LIF) is not perfect, current commission caps are appropriate particularly for advisers dealing with clients in their 40s and 50s with complex needs, according to ClearView.

With the Quality of Advice Review happening this year, one of ClearView’s regulatory priorities was that there be no further changes to risk commissions.

Speaking to Money Management, ClearView managing director, Simon Swanson, said while current settings may not be ideal for some younger people who need lower levels of cover, it was better than some alternatives including a total ban on commissions.

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“Further tinkering with commission caps will not move the dial on quality but would have a detrimental impact for consumers, advisers and society,” he said.

While commission rates varied from country-to country – with rates in New Zealand at 200% upfront and 8% ongoing - ClearView believed current life insurance commission rates in Australia were appropriate, capped at 60% upfront and 20% ongoing.

Swanson said potential unintended consequences of reducing or banning life insurance commissions included:

  • Fewer people seeking professional advice and getting adequate cover;
  • Fewer advisers providing life insurance advice and those who do focusing on wealthier clients; and
  • The financial cost of caring for the sick and injured falling back on families, society and the government.

At the AIA 2021 Adviser Summit last year, Labor’s shadow minister for financial services, Stephen Jones, reasserted his view that insurance advice commissions needed to be abolished as they were inherently conflicted.

“I think Ken Hayne used the analogy that you can’t stand with one foot in one canoe and the other foot in another canoe, you’ll end up in the water. And conflicted remuneration is a problem, that’s the position I start with,” Jones said.

Referring to Labor’s policy position, Swanson said “pointing the blame finger at commissions for all the industry’s issues” was too simplistic and did not address the real issues.

“A lot has changed since the introduction of LIF and I believe the quality of advice has significantly improved in the past four years but not because commission caps have been reduced.

Swanson said the industry’s progress was a result of higher adviser education and training standards and institutional exits from personal advice, leading to the breakdown of vertical integration and the demise of restricted Approved Product Lists.

“These two factors have been instrumental in improving the management of conflicts of interest, enhancing product choice and competition, and lifting advice quality; key aims of LIF,” he said.

“They have accelerated the industry’s journey to a bona fide profession and support a shift to more principles-based reforms.”

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This commentary is not up to date. At the AIOFP conference in December 2021 Stephen Jones expressed the view that commissions on risk may be workable with full disclosure and genuine advice being provided. He said words to the effect that he had been moved from his previous position, where it is clear that the adviser is acting for the client, and the commission is merely a payment mechanism funded out of the client's premium payments with the clients informed consent, then the potential for conflict could be managed.

There was discussion around the topic that churning was not something most advisers were involved in and that client advice options should not diminish simply because of the actions of a few.

There was also discussion that advice around risk which generally results it the highest commission payment always being generated by the adviser would likely be in itself grounds for review. You would reasonably expect that the highest commission paying solution would not always be the recommended one.

Perhaps the Government could be as understanding with Life Insurance commission as it was with Mortgage Broker Trailing Commissions ?????

Mr Swanson, those unintended consequences are in play now.

All that those remarks made by Stephen Jones in removing commissions will achieve is to acerbate those unintended consequences even more so.
Mr Jones, how are current commission payments conflicted ?

No matter which of the 8 current life companies and 3 of those are owned by one of the other 8 an adviser uses, the commission rates are the same !

How a client in genuine need of life risk cover pays for their insurance is influenced by one thing, and its not the amount of premium they pay, but the benefits offered and the ability of the life company to pay when needed without going to ACA, 60 minutes or a good lawyer.
Because by enlarge the premiums due to a lack of competition are largely the same wherever they go, with similar benefits offered.

The current commission rates are unsustainable for the advisory community to participate. If you ever needed more convincing, start looking at the premium inflows for the various like companies and compare it to the outflows.

If you want to kill off an industry, I can think of no better way than to remove the bulk of the advisory industry from participating, because expecting them to offer the general public inferior contracts with no certain of premium rates, even over the short term, for very little remuneration (even on a commission basis) is where we are today!

And here we go with another life insurer arguing for what works in their favour not in the client's or Adviser's favour. 60% commission does not provide adequate compensation for the Adviser unless a client is spending at a minimum $5k in premium. Remember that 60% is the headline commission rate but what the Adviser gets is much less than that once you take out the part of the premium that is no commissionable e.g. policy fee, frequency loading (when paying monthly) and stamp duty. The actual commission is more like 50%.

So for a client who spends $5k the Adviser gets $2,500. Think about that when it's now widely accepted that the cost of producing an SOA is around the $3k mark.

Unfortunately if you have young families coming to you now for insurance advice, it's either turn them away or ask them to pay an upfront fee of $1,500+. These are the people that need help the most with the largest need for cover but can least afford to pay a fee like that. The outcome, they stick with poor quality and expensive default group cover through their super fund.

There needs to be a concerted push to unwind parts of LIF, get us back to 80/20 and remove the 2 year clawback. Either that needs to happen or the quality of advice review (or whatever name it has) needs to recommend no more SOA's for insurance advice.

How on earth anyone could say 60/20 commissions will enable new entrants into the industry to build a business profitably is beyond me. It is, or should be, common knowledge that an adviser does NOT get a clear 60% upfront OR a clear 20% renewal. I'm NOT talking about the tax-take either. After MUCH reflection and analysis I am firmly of the belief that the ONLY way forward for our risk industry is for an 80/20 split. It is the only way for newbies to build a business, for them to have something to look forward to in order to have support to look after clients in subsequent years (20% renewals) and for older advisers to support mentoring newbies who don't make any real financial contribution to a business for at least a year and often longer. I've seen it written in such pages as this that by 2026 the industry will be bereft of pure risk advisers if something like this isn't done - along with reining in the overbearing compliance regime. Let's hope the regulators can see sense or I fear those predictions may indeed come true. Risk advisers simply cannot charge fees for pure risk advice - they MUST rely on a decent commission and that mnuber is 80/20 - THAT is the happy medium.

Ok Simon Swanson.....I think every serious risk adviser out there are now listening to your comments and realising where you really stand and the lack of courage you continually display to tell it like it is.
If the quality of advice of advice has significantly improved in the last 4 years and it has nothing to do with the reduction of commissions, then it obvious the commission rates should be increased to an absolute minimum of 80/20 or potentially to a 100/20 combination to ensure risk adviser practices can remain viable, the new business inflows can begin to increase assisting in offsetting escalating claims expenses and the ridiculous and unsustainable policy premium increases can be slowed to a level where the carnage of policy cancellations can or may begin to slow.
Simon, what you shouldn't continually be saying is that risk commissions should not be reduced further......what you should be strongly and relentlessly advocating for is for risk commissions to be returned to the previous Hybrid level at the very minimum and higher if possible.
Simon, you always seem to play the politically correct game.
You need to show a bit of mongrel and stand up for what you know is really right and to criticise the mistakes that have been made by the people who peddled the ideology that higher commissions were a direct link to poor advice quality and were a fake and the deliberately constructed singular reason for the so called policy churn.
You well know that life Insurance companies sold risk advisers down the road when they agreed to not challenge the commission reductions proposed during LIF negotiations.
You may well have said a few things during that period Simon and I know Zurich also stood up and made some sensible commentary, but it was light weight and did not represent strong and unwaivering support for all those loyal advisers that had supported companies for years with quality and long term business.
If advisers only deal with older clients in regard to risk business because they can no longer afford to provide advice to a younger client, then your client base and the revenue will eventually die out....especially with the unsustainable premium costs we are now experiencing.
Advisers don't need to be told the commission levels are just fine the way they are....because they are blatantly not.
Advisers need people like you to grow some and speak up without fear.
....and if you don't truly believe that risk insurance commissions should be immediately increased then sadly, you are part of the problem and the destruction of the life insurance industry as we knew it.
As you have previously stated Simon, it is about offering choice to the consumer..whether it be commission with the flexibility of the adviser to reduce the commission or a fee for service/advice model.
However, the current 60/20 model is an abject failure.
Your very own company, ClearView introduced a risk adviser fee that could be paid in addition to the commission payment when the reduction in commission amounts commenced following LIF because you knew then the reduction was going to crucify adviser's remuneration in regard to the level of work required in providing the advice.
If you want to support advisers then stand up and speak up.

The problem with commissions is that they are not really understood by many ,including advisers. The result now is that commissions are too low to the detriment of adviser, clients and the life offices who went along with this rot. Now they realise that they shot themselves in the foot. No wonder little business will be written in the lower premium arena.

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