Ditching commissions for life insurance advice will leave many 'chronically uninsured'

by Julia Corderoy20 Oct 2014
A national wealth and accounting group continues to call for greater transparency and tighter regulation within the life insurance industry, but said removing commissions would result in many Australians being “chronically underinsured”.

These concerns come on the heels of an ASIC investigation into life insurance advice, finding that more than a third (37%) of the advice consumers received failed to comply with regulation governing a consumer’s best interest. 

The review suggested commission and remuneration structures may be the catalyst, citing that high up-front commissions are more strongly correlated with non-compliant advice.

David Hasib, a partner at Chan & Naylor Wealth Planning said that vested interests must clearly be addressed, but removing commissions isn’t the answer.

“However the existing framework is robust enough to prevent risk advisers churning policies, and if commissions were removed altogether in lieu of a service fee then this would not correlate to a one-to-one premium saving for the client.”

Hasib says commissions justify the work that risk advisers undertake to investigate the features and benefits of policy definitions, which can set one insurer ahead of another despite the premium being similar.  

Although he agrees with an industry-wide review on standards, he fears that replacing commission with a fee-for-service structure will discourage Australians to protect themselves. 

“Australians already don’t invest enough in their financial well-being, so why would they do so if they are expected to pay more for advice?”

Hasib argues that conflicted remuneration has not been satisfactorily addressed by the proposed FoFA reforms and believes that the entire industry, including dealer groups and product manufacturers, must be held more accountable – particularly as between 80% to 85% of financial planners have some form of institutional ownership (via their licensee).
“If we can remove the inherent, product selling culture of the 80’s & 90’s, then it will be to the benefit of all Australians,” he said.
“We do need stronger guidelines, but we also need clear transparency both for the industry and for consumers.”

There is a growing undercurrent of support for this position as peer attitudes are beginning to shift away from the institutionally owned groups towards an independent advice model, Hasib added.