What will be the impact on insurance premiums if risk commissions in superannuation are banned?
Early adviser responses to the Cooper Review recommendation to ban risk commissions in super, suggest there will be a substantial and adverse impact on consumers, advice practices, tax payers and social welfare payments.
All of these areas, such as the impact on the viability of many advice practices, are important and will be addressed in forthcoming polls. But the focus of this poll question is concerned with the potential impact that a banning of risk commissions in super may have on the cost of insurance. Our question is:
Will banning risk commissions in superannuation lead to lower insurance premiums?
To recap:
Cooper Review Panel Recommendation 5.12 reads:
Up‐front and trailing commissions and similar payments should be prohibited in respect of any insurance offered to any superannuation entity…
The Panel’s reasoning behind this recommendation is based on the contention that commissions form a meaningful component of an insurance premium.
Logically, if commissions are removed from the premium, insurance costs should be cheaper and superannuation account values will increase because a greater proportion of the super contribution will be invested, rather than spent on insurance.
Premiums on existing retail life insurance products can reduce by around 35% if the adviser dials commission down to zero, while level commissions on group risk products typically load the base premiums by around 15% – 20%.
But in reality, would premiums reduce by these levels if risk commissions in super are banned?
Even though they are in a competitive environment, could life companies see this as an opportunity to extend their profit margins, as some have suggested? Meanwhile, others point out that if a risk adviser is placed on a salary by a bank or industry fund, the company still needs to account for that salary expense within the premiums that are eventually paid by the member.
Likewise, if superannuation trustees ‘import’ insurance advice for their members, there will naturally be a cost for that advice which must somehow be paid.
What is your view? Will banning risk commissions in super bring down insurance premiums a little or a lot, or not at all? Will the superannuation member ultimately be better off, or will they pay elsewhere?
Let us know what you think…
If commissions are banned from Life Insurance then fewer claims will be paid out, so the insurer’s costs will go down and so the premiums can go down. Pity about the insured people not getting what they paid for but that is the price of ALP progress. Of course the clients can pay a success fee from any claim proceeds if someone helps them with the claim, but that would mean the sum insured would have to go up. So if clients want someone to help them at claim time they have to pay one way or another, by either higher premiums or lower claims. Surely it is fairer for all clients if the cost of administrative assistance is built into the premiums, rather than negotiated at a time when the clients are most vulnerable (claim time).
Insurance companies will cash in as I am sure premiums will not be reduced.
It is amazing that no one is worried about insurance companies charges and government taxes on super.
No. I ditto Elias’s comments.
Seriously now, do you honestly think that the trade uions of Australia are going to give up there commissions that they generate through super within there industry super funds.
I would like to see that!!!
Surely the insurance companies have factored commissions into their premium structure? Of course the premiums will go down. If they don’t reduce premiums when commissions cease, they will be hammered!
However, because an adequate level of insurance needs to include a number of factors and then calculated, if commissions are banned no adviser will be willing to take the time and cost involved with providing insurance advice. (clients do not want to pay a fee to have their insurance needs calculated) Consequently, most people will only be covered by the default amount of cover in their super, which is woefully inadequate.
Cooper has proved in his superannuation review report that he is not interested in whether a person has adequate insurance or not. All he is interested in is providing a low-cost superannuation product that does not pay anything to anyone, including the member!
Planners cost governments money, ie enhance pensions and reduce tax strategies. it is a largely ALP run agenda from day one to reduce planner numbers. Lack of competition will mean higher premiums as no-one in their right mind would go through the painfull process of arranging someones insurance cover for a fee that may not be paid. This government expects us to be accountable to the extent you go to jail if strategy for cover cannot be verified. Then expects us to earn effectively a salary for the risk of presenting advice. I don’t think so!! Lots will leave, more dole queques and families near poverty line. Most planners will sell and then make a fortune coming back after these fools are gone to clean up the mess.
There is always a cost for disribution of any product. if we dont get paid by commission then it will be called something else, if the gov was serious about fees eating into retirements then reduce the biggest cost TAX, and sack most of the public servants whom should be redundant.
I have read the relevant section of the Cooper Review covering the matter of banning commissions. Jeremy starts off by saying many families lose loved ones on a regular basis (stats are quoted) and therefore risk cover is very important! Well done for pointing this out! He then mentions the annual cost of commissions (the figure is large because it’s in absolute dollar terms not a percentage of premiums paid!) and says there would be big benefits to those who take out insurance if the commissions are abolished and these costs passed on in savings to the consumer. That’s great in theory and works in every form of business! It’s like saying we’ll ban food retailers (Coles & Woolies) from making a profit because that way grocery prices for people that shop there will be cheaper by 5% or whatever their net profit margin is! What a stupid comment to make! Our market economy is based on the notion of profit! If non-profit organisations were so marvellous then why isn’t every organisation in Australia run by the government or non-profit bodies? The Cooper inquiry received a lot of submissions from vested interests to have commissions abolished so they have responded to this supposed “outcry”. If the mining companies could successfully fight back and have the Resource Super Profits Tax substantially changed then why can’t we as an industry also fight with one voice to have this recommendation ignored? As I have said in previous responses on this riskinfo site why is insurance being picked on and not commissions paid to real estate agents, travel agents, sales assistants at retailers, etc. Also why is there a move to ban commissions now when it has been OK for hundreds of years? There is a political agenda at play here and we must fight it not just lay down and accept it! Unlike super, risk insurance is not compulsory, it has to be bought by people therefore the argument for removing commissions from super contributions doesn’t apply to risk!
As a risk advisor I would be discussing with my small business owner insurance in or out of his SMSF, same policy, same benefit only one is inside super and 30% cheaper!. This will drag the whole risk market into no comissions by default, beware!
Everyone knows what happens when competition is removed.Prices go up.
Once the Industry funds have destroyed the only thing (advisers) that shows them up as being cost focused with little regard to qaulity and no regard for clients at claim time,they will monopolise the Life insurance arena by having exclusive mandates with maybe 3 Insurance Companies and watch as the other Companies leave Australian shores due to reduced premiums and reduced reserves to pay claims.
Once that is achieved, watch how Insurance premiums rise.
We only have to look at Coles and Woolworths to see how it all works,push cheap food and petrol to drive out all smaller competitors,then once they get market share,use their muscle and drive up prices.
As usual,the Industry funds have been able to focus the Governments attention on short term cost analysis, with no regard for product quality, client preference or the long term implications to all Australians of this misguided and absurdly simplistic approach to Insurance.
PS:A huge slice of the 3.8 Billion paid to people in 2009 came from the advisers work, who were able to focus clients to pay the premiums that in turn paid the claims.
We have reason to be concerned and we need to get involved.
There were many submissions from various companies (i.e. CBA) which supported us as advisers and highlighted that change may be needed but there was a great need to keep advice accessible and to keep advisers in viable businesses. Unfortunaltely little of that information (CBA created a 14 page submission) seems to have had any impact on the commitee. My encouragement to all of us who are passionate enough to voice our thoughts on forums such as this is A) Join the AFA – they are saying almost everything I read here BUT to be heard they need NUMBERS not just sound arguments. and then B) Go and see your local member and senator as they will be the ones voting on this once the legislation is put forward – we all need to make our voices and concerns heard. It is going to be a fight but we have to stand up and with a collective voice.
Risk writers like me will not work for nothing. As a result we will write insurance outside of super. This means less household and consumption expenditure on goods and services from the consumer – placing recessionary pressure on the economy. Come to think of it, I would love it if Cooper held a seminar on my front lawn. That way my grass could get fertilised with the excriment spspewing from his mouth.
The survival of our industry will depend on the outcome of the federal election. If the ALP wins and the Greens hold the balance of power in the senate then you can kiss your business goodbye.
The Financial Services Sector sits between the savers that need to invest money for a return and business that needs to raise money to fund expansion. Financial planners have been an important provider of skills in the sector helping to match the needs between savers and business. It is quite evident that the ALP wants to decimate the financial planning industry and deliver maximum control of the capital flows between savers and business over to the union movement via the Industry Fund Network.
Banning commissions on life insurance products is just another element in their quest to achieve their overall agenda of socialist domination in Australia. Look at their form, they are nationalising the telecommunications sector, changing superannuation from an industry into a social infrastructure and they attempted to nationalise a large portion of the mining sector.
In my opinion if you want your business to survive then we need to change the government. Don’t be shy about voicing your concerns to friends and family.
This whole discussion is madness. Commission is paid to so many other business professionals – recruitment agents, medical equipment sales peeople to doctors, real estate agents, travel agents, retail sales people, mortgage brokers, general insurance brokers … the list goes on. Why shouldn’t the companies that we refer business to pay the adviser’s business a fee/payment/commission (what ever you want to call it). If we have to start charging people fees in addition to the premium, good luck to small adviser businesses here in Australia, who pay tax and pay salaries to support staff with mortgages, kids, tightening family budget. Most will be finished and be heading to Centrelink and putting their hand out for $$
The Insurers and Fund Managers have generally relied on a large outside distribution force of Agents/ now advisers who give a more balanced view of the whole market to consumers. They accept a call from the consumer, give advice on a range of subjects, facilitate arrangement of the appropriate products(insurance/super/investments)plus admin, claims handling etc. For this they are remunerated called ‘Comission or Brokerage’. Cooper et al, (and many of the dopey Advisers and Associations in the industry) want remuneration/ commissions made Illegal!!! Yet a consumer calls an Industry Fund, or other Institution asking similar questions, and they get similar but narrowly focused services by the internal people at the Fund. Their remuneration is similar to ‘commissions’ but called ‘wages/salaries/bonuses/incentives/ support…yet for Cooper, this is fine and acceptable. But for outside, self employed, broader scope advisers it is not! If it’s Illegal for Advisers, it should be Illegal for ALL, doing like or similar services. He should also ‘Ban’ all remuneration to Sales, Advice, linked Admin people in the Industry Funds(and all Super Funds), and they too, can only be paid by fees, charged to, and agreed by the Consumer!!!! And they have to agree every year. And to parallel ‘Fiduciary Duty’ the Industry Fund people MUST then advise each and every consumer that their industry Fund may ‘Not the Best for them’ and they should check the ‘xxx other Indstry Funds’, and any Corporate Funds they may have access to, as these other Funds are better than us!!!! Advice and services cannot be ‘By Fee’ from one group, and ‘Free’ from another. (Except in Cooper Land). If it proceeds it’ll be a disaster for numerous Advisery Groups, and Consumers. By the way, this is the fight the FPA and others protaganists against commissions (remunerations)should have been fighting. They totally overlooked the possibility of much of their product ie Advice, being taken from them, and now the last 100 years of Industry Distribution is in jeapody, and they helped by singing from the same sheet as the anti adviser Campaigners. Well done. Many products which haven’t yet been invented or reached market in super and other fields will require active distribution with remuneration. If they cant happen, the community will further lose from this draconian situation.
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