AFA warns against ban on insurance commissions
The Association of Financial Advisers (AFA) is calling on the Government to think carefully before considering a ban on risk insurance commissions, referring not only to the impact on families but also on the public purse.
The AFA stated that the Government should be wary of introducing any measures that would discourage Australians from taking out risk insurance. AFA national president Jim Taggart said household debt in Australia is equal to one and a half times after-tax income, which presents a significant risk for those with inadequate life insurance.
“The average mortgage is around $283,000 and the average credit card debt is about $3,240,” Taggart said, referring to Australian Bureau of Statistics and Reserve Bank figures. “That’s a lot of debt to service if you are only earning the national average of just under $65,000 per annum, even if your partner is also working.”
Taggart said that according to Investment and Financial Services Association/KPMG research released in December 2009, the average life insurance lump sum claim paid between 2004 and 2006 was only $132,537, below the average level of household debt.
Taggart said not only are there serious ramifications for families unable to service their debt, but underinsurance will ultimately place greater strain on the social security system, which he added is already experiencing the increasing burden of an ageing population. Referring to a Rice Warner Actuaries survey from 2005, Taggart said the additional social security payments arising from the deaths of parents with limited insurance was about $250 million a year, not including other costs to government revenue such as housing and the loss of income tax revenue.
Taggart said banning commissions on risk insurance presents a serious risk and therefore the Government should engage in proper consultation.
Recommended for you
Policy and advocacy specialist Benjamin Marshan has left the Council of Australian Life Insurers after less than a year, having joined in March from the Financial Planning Association of Australia.
The declining volume of risk advisers meant KPMG has found a rising lapse rate for insurance policies arranged by independent financial advisers, particularly in the TPD and death cover space.
The Life Insurance Code of Practice has transferred from the Financial Services Council to the Council of Australian Life Insurers.
The firm has announced it will no longer be writing new life insurance policies in the retail advised and corporate group insurance channels, citing a declining market and risk adviser numbers.
