The major life/risk insurers have made clear they see financial advisers as being integral to the industry and have sent a clear message that any move to eliminate life/risk commissions after the 2021 review of the Life Insurance Framework should be carefully thought through.
As part of a review of the life/risk industry currently being conducted by Money Management, senior executives within TAL, MLC Life and Integrity Life all made clear they had concerns about the consequences of ending life/risk commissions.
TAL chief executive, Brett Clark said the company believed that community access to high quality financial advice and that, regardless of the remuneration framework, a vibrant financial advice sector supporting well informed customers was essential.
“Financial advisers are small business operators, providing local employment opportunities, often trusted members of the community, who work hard to provide competitive insurance products and services for their clients. The parallels with the recent debate on mortgage broking remuneration are very relevant and insightful,” he said.
Clark said the Life Insurance Framework (LIF) reforms had set out a commission framework to properly balance and align customer and adviser outcomes and that TAL support that framework.
“Any further changes beyond the scheduled 2021 review need to be examined carefully,” he said.
Integrity Life chief executive, Chris Powell said life insurance products were complex and not well understood by consumers and on that basis professional risk advisers played a key role in analysing the life insurance needs of the consumer and recommending appropriate products and levels of cover based on the specific needs of their client.
“This is an incredibly important and essential role,” he said. “Fundamentally, Australians are underinsured.”
Powell said that while it might be true that there was always an element of conflicted remuneration in any commission, it was also true that Australian’s were unlikely to place the same level of value on the advice provided if they were required to pay for it separately.
“Thus, any proposal to remove commissions completely is likely to significantly reduce the levels of professional life risk advice taken up by the community as a whole,” he said. “Integrity Life strongly believes the decision to receive commissions or reduce them and move to a fee for service model is best resolved through transparency and agreement between the adviser and their client.”
“At the same time, we note that our systems have been built to be agnostic regarding fees and commissions. We can pay commissions or we can deduct them from the premium and allow the adviser to specify a fee for service,” Powell said. “Our systems can also handle mixed fee for service / reduced commission arrangements. Finally, whatever decision is made by this or any future Government, Integrity Life promises that we will strongly support advisers through any transition required.”
MLC Life’s chief customer officer, Retail and Group Insurance, Sean McCormack said the company supported a sustainable advice model and that currently, commissions – as a part of LIF – were an important part of this model.
“We support the LIF review by ASIC scheduled for 2021 and commend Commissioner Hayne on his recommendation that this review be continued. Our fear is that, without a robust alternative approach, reducing commissions to zero has the potential to push access to advised insurance out of reach for Australian’s on middle incomes. We support advised insurance both at the inception of a policy as well as on a regular basis through ongoing relationships. Unintended consequences of reducing the access to advised insurance would not be a good outcome,” he said.
“If there are to be changes to commissions, any alternative model has to be viable for customers and advisers alike to ensure that underinsurance does not grow. Customers should be able to choose how they get access to insurance, and a removal of commissions may shrink that ability."