Increase commission for life insurance to reduce underinsurance

Commission should continue to be offered on insurance advice, according to The Advisers Association (TAA), and current commission rates are too low.

The association’s submission to the Quality of Advice Review stated insurance was more similar to mortgages than to investment products and that commission on insurance would help consumers access affordable advice.

The current mandated commission rates helped to manage and minimise conflicts, as the adviser received the same percentage and remuneration regardless of which product provider they chose, but that current rates were too low.

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Neil Macdonald, chief executive, and chair Bill Beimers said: “We believe there are significant benefits to consumers and the broader Australian economy to continue to allow commission on insurance.

“Current upfront commission is too low to cover the costs of providing insurance advice, which is reflected in the number of members who have ceased providing insurance advice.

“Access to insurance advice for consumers has deteriorated with the exit of many risk specialists. We will leave it to others to argue what the upfront commission should be but our starting point is it should not be less than the current 60% and preferably be 80% or above.”

It felt commission should continue to be banned on investment and superannuation products as most firms had already changed their business models.

Other measures which would help improve the uptake of life insurance and reduce the amount of consumers who were underinsured included clarifying the ability to safely scope advice and introducing Letters of Advice for life insurance.

TAA also contributed to the joint submission from 12 organisations.

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I've stopped writing insurance! Its a loss leader!

So AMP advisers want to have more commission.....why don't you use fee for service?

Because the number of consumers willing to pay fees for insurance advice in addition to a product premium is very low. Perhaps you are lucky enough to have those sort of people in your client base, but most advisers don't.

BTW surveying consumers about whether they would prefer commissions or fees will always give a result heavily in favour of fees, because consumers have been misled by union super funds and so called "consumer associations" that commissions are always bad. But when real clients making real purchase decisions are offered a choice between commissions and fees, my experience has been about 90% choose commissions. I believe most other advisers have experienced similar consumer preferences. If that 90% didn't have the option of commissions they wouldn't happily pay fees instead. They would choose to go without professional insurance advice and do it themselves online. Which is what the insurers really want, because insurers can more easily sell them junk products with lots of built in exclusions, which reduces insurers' underwriting and claims costs.

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