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.
“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.”