Risk commissions ban possible as old battle-lines re-emerge
The bad news for life/risk advisers and the major life insurers is that the same forces who drove the anti-commissions argument which led to the Life Insurance Framework (LIF) are again baring their teeth to oppose any change resulting from the Quality of Advice Review.
The submissions from multiple industry funds bodies make clear their belief that commissions with respect to commission-based payments around life insurance outside of superannuation should be banned.
The re-emergence of the hard-line opposition to commission was reflected in the Industry Super Australia (ISA) submission to the QAR which bluntly states that “commissions for the sale of life insurance should be banned”.
It justifies its continuing hard-line position by arguing that the even under the current LIF formula of 60% for the first year of premium and 20% ongoing trail commission – “the commissions remain objectively high and incentives, although much smaller, to churn clients remain as trail commissions do not need to be re-paid if a policy is terminated within two years”.
“While commissions remain permissible for life insurance sold outside of super, there will always be a clear incentive for financial advisers to recommend retail life insurance products instead of life insurance within super,” the ISA submission said. “This is unacceptable and commissions should be banned to remove this conflict of interest.”
“Understanding whether banning commissions on the sale of life insurance will exacerbate under-insurance was a key evidentiary threshold for Commissioner Hayne. It is unclear but probably highly unlikely that the ASIC post-implementation review of the LIF reforms will provide any data on the risk of underinsurance if commissions are banned completely as it seems to primarily involve the collection of data from insurers,” it said.
“However recent insights by Rice Warner indicate that: ‘Over recent years, the level of underinsurance has reduced primarily because of the increase in default insurance benefits provided by superannuation funds. Today, some 70% of life insurance benefits are provided via superannuation funds rather than via individual, retail risk insurance’.”
While regarded as being more moderate than the ISA, the Australian Institute of Superannuation Trustees (AIST) also urged that the QAR “should recommend that commissions on life insurance products should be prohibited forthwith”.
“AIST understands that ASIC has been collecting data since 2018 as part of a review program but that progress was delayed by Covid, and that responsibility has now been transferred to Treasury,” the AIST submission said.
“While the outcome of the review may impact on distribution arrangements in the life insurance sector, this does not displace longstanding and ongoing concerns that life insurance commissions has contributed to poor outcomes for consumers. Both ASIC’s 2014 review of life insurance advice (REP 413) and the FSRC found commissions to be linked to poor advice. The introduction of capped commission has not solved the problem.”
“No justification has been provided for retaining commissions, and so Commission Hayne’s recommendation that they be prohibited should now be implemented,” the AIST submission said.
The Assistant Treasurer and Minister for Financial Services, Stephen Jones has signalled he is open to being convinced on life/risk commissions but it is now clear advisers have another fight on their hands.
If ISA actually read their own policy definitions and claim history they’d understand the best interests of our clients are more important than their own hypocritical and conflicted views on this matter.
Both ISA and AIST make completely unsubstantiated claims.
Further it is NOT uncommon to have better quality policies WITH commissions that are cheaper than ISA policies. Where does this money go???
The veil of secrecy around how union funds are run must be lifted.
No surprise that 3 different union super lobby groups (AIST, IFA, IFS), along with multiple union super funds, all made submissions lobbying for a ban on insurance commissions. Default insurance via union super funds is a great additional source of income for these funds. It is also a great place for them to avoid scrutiny for the over priced, poor quality element of their offering, due to the media’s blinkered obsession with investment fees rather than the total package.
If it is time to seriously consider removal of insurance commissions, then surely it is well past time to remove default insurance from super funds. This insurance is inevitably the wrong type and amount of insurance for most people, with younger single people unknowingly paying for insurance they don’t need, while those with dependents and liabilities are frequently under insured due to a false sense of security that “they have insurance in their super”.
Then there is the whole issue of erosion of retirement savings to pay for insurance. The regulatory double standard on this issue is breathtaking. Financial advisers who recommend a tailored, high quality, solution that meets client’s genuine insurance needs are rigidly scrutinised and forced to defend themselves if they fund any element of insurance from super. Yet super funds themselves are allowed to impose poor quality, largely unsuitable insurance policies on members, that siphon their retirement savings to generate additional sly revenue for the manager.
Any discussion of the removal of insurance commissions must also incorporate a discussion of removal of insurance from superannuation.
Wouldn’t this be something else if ALP dropped the comms. All those advisers who thought it would be wise to vote for them would be in a world of pain. They would only have themselves to blame for thinking the ALP has changed.
Problem was Jeffrey, that the Coalition got us into this mess in the first place. The level of analysis that Josh Frydenberg applied was to simply halve commission rates (from up to 120% to 60%) because it made a great headline. No analysis of unintended consequences or an understanding of the cost to deliver the advice. Neither side looks good on this issue.
They banned commissions in the UK only to reinstate them after it almost killed off the Industry. Unions have too much say in this, they are conflicted
Let the insurance companies open up their own Insurance offices in each town to service all these customers and we will be happy to refer them. the policies are to complex to let people just sell over the phone, they can cause tax issues, companies have been caught selling junk insurance… the Insurance companies should be allowed to have people that sell insurance direct to consumers but they should be subject to best interest duties and have uni qualifications.Same for the industry funds. Insurance should be opt in not auto opt in.
Commissions reduced from 110% down to 66% and all premiums have done is gone up with some up 45% in one year can’t keep blaming advisers. all these insurance companies have balance sheets that are also connected to investment markets share prices, share holders, and money invested in the market as well so lets stop pretending that is the advisers fault.
These ISA clowns are hanging onto the past because they have no useful ideas to fix anything. If they looked at anything that has changed in the last 5 years, they might learn that advisers can’t just churn insurance (not that 99% did previously) or they break the best interest duty and cop massive penatlies. If there is a better, cheaper policy with another company, it is not churning and never has been. It is called acting in the clients best interest.
Between insurance companies raising the premiums to levels that force clients to cancel even long held ‘level premiums’ and the drop in insurance commission, advisers like me not prepared to lose money every time we give insurance advice. Industry super loudmouths seriously wouldn’t know sh*t from clay about anything to do with providing good advice to clients. Crawl back in your hole fellas and leave the advice to people who actually care about their clients.
ISA receives the most COMMISSIONS of anyone in the Industry.
1) Hidden bulk sales commissions for group Life Insurance deals.
2) And HIDDEN COMMISSIONS charged to every member for Intra Fund Sales flogging.
And most members don’t get any sales service for their HIDDEN COMMISSIONS = massive Hidden Commissions for NO Service.
ISA, total and utter lies and hypocrisy.
DISGUSTING BEHAVIOUR.
Be good if the industry funds themselves stopped receiving commissions on life insurances.
What a joke! “underinsurance has reduced primarily because of the increase in default insurance benefits” How can default insurance have increased with the recent changes introduced – opt-in instead of opt-out & thousands of members losing insurance cover without knowing due to inactive accounts & low super balances!? Younger members will also start dropping their default cover in time, as they are subsidising the cost for the older members, equalling more underinsurance!
“there will always be a clear incentive for financial advisers to recommend retail life insurance products instead of life insurance within super,” No S#@t! Everybody or every adviser knows that retail products are far superior than default insurance products! As advisers, our job is to ensure that our clients have the best possible chance of qualifying for claim payments. Definitions are making it harder & harder for super members to qualify for benefits within super.
It has already been proved that reductions in commissions does not work for the adviser or the consumer. Merely a vested interest here in favour of the industry funds. Underinsurance is rampant.
It’s not the remuneration it’s the bad legislation. You couldn’t pay me 200% of the first years premiums to write a SoA recommending Insurance. It’s a compliance minefield, the legislation is too restrictive. There are not enough PI companies in Australia to take the risk on. Anyone foolishly still operating in this field is just a ticking time bomb.