FPA backs risk commissions, rejects consumer group objections

Mike Taylor

Managing Editor and Publisher

23 November 2022

Faced with consumer groups continuing their calls for the removal of commissions with respect to the sale of life insurance products, the Financial Planning Association (FPA) has sought to stand firm on retaining the Life Insurance Framework (LIF) approach.

On the eve of the FPA annual congress in Sydney today, FPA chief executive, Sarah Abood noted the position adopted by the consumer groups but said that banning commissions would leave consumers chronically under-insured – something which had been reinforced by multiple research studies.

“By banning commissions, we’d effectively be removing consumers’ ability to choose how they wish to pay for their advice,” Abood said.

“Multiple research studies have shown that a high proportion of consumers would not purchase insurance at all if they were required to pay an upfront fee. So the result would be that far fewer Australians would have appropriate insurance protection in place.

“This is a problem not just for the individual but for our whole society. It would leave many Australians entirely dependent on the social security system in the event they became ill or suffered an accident and were unable to work, or where a family breadwinner passes away.”

Abood referenced NMG Consulting research showing that retail advised new life insurance business volumes have more than halved, declining from $638 million in 2016, before the Life Insurance Framework (LIF) reforms commenced, to just $317 million in 2021.

The FPA said this number is expected to fall further over the next few years, driven by several factors.

“Overall, the number of financial planners who provide life insurance advice has declined substantially in recent years and this has meant that it has become much more difficult for Australians to access advice in this area,” Abood said.

“LIF also substantially reduced the remuneration advisers can earn from individual policies, which has made it economically unviable to provide life insurance advice to younger Australians where the premiums are lower.

“As a result, advice is focusing increasingly on older Australians, increasing the risk of the overall insurance pool and ultimately driving up premiums for all.”

The FPA supports all the proposals made in the Quality of Advice Review paper on conflicted remuneration, including the proposal to leave the Life Insurance Framework (LIF) model unchanged.

It also supports the continuation of the existing exemption on life insurance commissions under the LIF.

“We welcome the findings of the ASIC file review. They show significant improvement in the quality of life insurance advice provided over the past four years,” Abood said.