Tim Browne explains why CommInsure opposes a ban on commissions.
The Cooper Review findings into the superannuation system were recently released, in particular; the findings highlighted the proposed reforms to adviser remuneration, which seek to abolish commissions on life insurance within superannuation.
CommInsure opposes any ban of commissions on retail insurance products.
We support flexible payment options for clients deciding how to pay for advice and consider commissions a sensible choice for many Australians.
While some clients might choose to pay a fee for advice, others will not be comfortable with, or able to afford, a lump sum payment.
Commissions are an alternative payment method, which allow clients to obtain advice without paying additional fees from their personal savings.
We share the government’s concern that affordability of insurance is a major issue and we believe Australians most in need of advice are often those least able to afford it.
A ban of commissions as proposed, is likely to compound Australia’s underinsurance problem.
We believe that many clients will not seek advice if forced to pay an upfront fee, and consequently, individuals may have insufficient insurance in place at claim time.
CommInsure has paid more than $2 billion in life insurance claims over the past six years.
Many of these clients have paid for advice through commissions and thanks to this advice, have had the money to rebuild their lives.
Advisers play a vital role in bridging the underinsurance gap by improving client understanding of the role of personal insurance, educating clients on the insufficiency of insurance provided through superannuation and communicating the probability/consequence of a traumatic event on a client’s financial position.
CommInsure claims data confirms advised clients are better off as they have more insurance in the event of claim.
Our average life insurance payout for an advised client is about 50 per cent higher than the average payout for a non-advised client.
This is consistent with broader industry statistics. For example, according to research from IFSA (now the Financial Services Council) and KPMG, the average insurance claim paid outside of superannuation is $132,537, while the average claim paid from an employer default fund is only $70,000.
Take the 2009 Victorian bush fires, of the 173 deaths and 414 injuries; there were less than 20 life insurance claims across the industry totalling less than $3 million.
Many of the 587 people could have benefited from adequate insurance cover — regretfully only a few had it.
We believe that it is only through engaging the services of a qualified life insurance adviser that individuals can have the peace of mind knowing they have adequate financial protection should a tragedy occur.
We consider default insurance within superannuation to be a good basic safety net for members, and while beneficial, it usually provides inadequate cover.
CommInsure therefore endorses the Cooper Panel’s recommendation to expand trustee responsibilities around the selection of appropriate levels of default cover.
However, we believe that the best client outcome will always come from tailored advice from an adviser.
Advisers develop a deep understanding of clients’ personal circumstances and are therefore able to ensure a client’s personal protection needs are met.
The Lifewise/National Centre for Social and Economic Modelling (NATSEM) Underinsurance Report calculates that the underinsurance problem is expected to cost the Australian Government $1.3 billion over the next 10 years — a figure that we consider would increase if commissions are banned.
With less personal insurance in place, the cost of a traumatic event will need to be borne by beneficiaries and the government.
The Commonwealth Government currently pays in excess of $8.6 billion to more than 700,000 people each year on Disability Support Payments.
This is the third highest Centrelink expenditure, after the Age Pension and the Family Tax Benefit.
Appropriate personal insurance is essential to assist clients at their time of need and to reduce this social and economic burden.
CommInsure remains committed to working with the Financial Services Council and the government to ensure that reforms, which are implemented, will support consumers with affordable, accessible and appropriate levels of insurance that is tailored to their individual circumstances.
