Less than 10% of life insurance advice is placed without commission, according to the Financial Services Council, and thousands more of Australians could obtain the product if a scaled advice model was introduced.
The FSC worked with NMG Consulting on possible impacts of the Quality of Advice Review found an implementation of a scaled advice model could result in a 12% increase or 432,000 extra Australians with life insurance cover over the next five years.
This was compared to a decrease of 612,000 Australians if nothing changed.
The proposal was the FSC’s reformed advice framework in conjunction with a simplified advice model that allowed for scaled advice to assess cover required beyond default levels.
This would reduce the cost of providing advice by almost $2,000, while maintaining commissions, allowing people to get advice at times when they needed life insurance protection but were unable to afford an upfront fee to pay for it.
With commission playing such a large part of life insurance advice, the FSC said removal of this would reduce advised life/risk sales by 60%.
“The removal of commission would result in significant decline in advisers advising on life risk and can be expected to dramatically reduce advised life risk sales (both in terms of updating policies to maintain best / appropriate cover for consumers, and for new consumers).
“While some advisers would switch to a customer direct fee model, most advisers would follow the path of many other advisers from recent regulatory change and stop providing life risk advice.
“This would result in many more people relying on their default group insurance even where the consumer has higher needs. In addition, this will result in many advisers not being available to help clients if they need assistance during claims.
“We estimate that removing commissions would reduce advised life risk sales by 60% (and increase lapse rates). By 2027, this would result in a 32% decline in the overall number of in-force advised life risk policies, significantly increasing the Australian underinsurance gap.”
FSC chief executive, Blake Briggs, said: “FSC research shows how the unmet life insurance needs of consumers can be addressed by comprehensively reforming the regulatory framework, not just tinkering with it.
“If nothing changes, the number of life insurance policies held by Australians is set to reduce by 17% in the next five years, leaving Australians without cover when they need it.”
Well stated on all points ‘Experienced’. I’d go further and suggest that a return to 100% commissions WITH 20% renewals is the minimum our once great industry needs for advisers to be sufficiently motivated and rewarded after the FARCE they have been put through recently. It won’t happen though and I have very little hope anything above 60% upfronts will prevail. Given this, I have very little hope the industry will do anything but continue to shrink wiuth advisers pushed out in 2025/26 due to the onerous and fully inappropriate educational requirements on risk specialists. AQF8 university degree standard to advise a client on term, trauma and IP. The ‘investment’ advisers won’t do it and view life insurance as an also-ran – most of them anyway. The insurance companies simply won’t have a viable distribution channel after 2025, simple as that. Thanks politicians and special interest groups oh and the clueless Mr Hayne. Client best interest? – yep, the politicians et al showed us that . . . NOT! Mind numbing.
And this is coming from the very organisation that during the disastrous LIF negotiations sided with the Trowbridge report and very clearly indicated their preference for the reduction of initial commissions to only 30% maximum or a complete abolition if it was shown that the quality of Life Insurance advice had not improved since the flawed ASIC 413 Report.
This was driven by none other than the now Liberal Senator, Andrew Bragg, who was head of FSC policy at the time.
The ASIC 413 Report clearly indicated the quality of risk advice when utilizing the then Hybrid commission model of 80% Initial and 20% Renewal produced an advice success rating in the mid 90% range.
Despite this, the FSC continually and consistently supported the extensive reduction of commissions to appease their Life Insurance company members who were driven by greed & profit by cutting out & cutting down commissions.
This was a major error in judgement.
It has failed.
The Initial commission rate should be returned to 80% & the Renewal commission rate set at 20% with a sliding scale one year responsibility period.
In addition, any insurance policy that was being replaced within 3 years of its commencement date would only be subject to the 20% commission rate to avoid any so called policy replacement or “ churning “.
The FSC needs to publicly state they made a grave error in judgment and support the return to the previous Hybrid model of remuneration immediately before the entire Life Insurance advice business falls completely apart.