Commissions question not so simple for insurance

Advisers believe that risk insurance commissions do not present a conflict of interest.

The Risk Store’s Sue Laing said there was a great deal of concern among advisers with regards to a possible ban on insurance commissions. But she asserted that a ban was unwarranted because there could be no conflict of interest when there was no such thing as a bad insurance product.

While the Future of Financial Advice reforms proposals put the issue aside due to concerns about the affordability and accessibility of insurance should commissions be banned, a Cooper Review recommendation has called for a ban on insurance commissions in super.

Laing said the move to ban commissions was being driven by industry funds that were against commissions on principle and did not address the question of commissions in the risk space.

“The very bottom line for every adviser in the industry is that not one of them would have lost a client because they discovered that they paid commission, nor did the adviser lose the capacity to give advice to a client because they were in receipt of commission,” Laing said.

A recent poll conducted by insurance information portal RiskInfo revealed that 87 per cent of about 500 respondents believe that the payment of commissions on risk products does not represent a conflict of interest to the consumer, real or perceived.

Referring to the RiskInfo responses, Laing said the reason why so many advisers felt there was no conflict of interest was because there is a relatively small number of insurance providers, which had created good competitive pressure.

“Where on earth is the conflict of interest when you cannot sell a poor product?” Laing asserted, adding that it is also impossible to prove a conflict of interest when commission differences are as little as 5 per cent.

“If you averaged out the first three or four years of a life insurance policy, there would be very little difference in the commissions across those companies. It’s minuscule, and no one has done that kind of comparison.

“Competitive pressures will make sure that product quality is there, and commission equality is pretty much there as well.”