March 7, 2019
Zurich has declared its support for the continuation of risk commissions beyond 2021.
The insurer placed its stake in the ground following the release of new research it commissioned, which revealed the extent to which consumers are unwilling to pay out-of-pocket fees for life insurance advice.
The rationale underpinning Zurich’s support for the retention of risk commissions is based on two key elements:
- The implications for the consumer and for risk-focussed advisers if risk commissions are further restricted or banned
- The argument that current commission structures as dictated by the Life Insurance Framework reforms (while inherently conflicted by definition), will have little-to-no impact on the best interests of the client being served now or in future
Some of the key findings from the research, conducted for Zurich by Rice Warner, include:
- Only 8 percent of those surveyed indicated they were willing to pay more than $1,000 as an out of pocket fee for life insurance advice
- By contrast, 93 percent of advisers said they would need to charge in excess of $1,000 for that advice
- None of the consumers surveyed said they were willing to pay $2,000 or more, which represented the amount that almost two thirds of advisers said they would need to charge
In another finding, which Zurich says illustrates the size of the challenge ahead if expert help with life insurance is to remain within reach of everyday Australians, almost 30 percent of consumers said they were not willing to pay any fee for life insurance advice.
These and other findings tend to reinforce the views that Zurich says it has advocated for some years, including its view that:
- Expert financial advice across complex categories such as life insurance is of enormous value
- Advisers should be paid fairly for the cost of providing advice at the time they provide it
- Consumers should have a choice in how they are able to pay for that advice
- Commissions play a vital role in allowing the everyday consumer to be able to access advice
Zurich …has long rejected the view that life insurance commissions are disliked and mistrusted by all consumers
In the introduction to its research findings, Zurich adds it has long rejected the view that life insurance commissions are disliked and mistrusted by all consumers, believing instead a significant proportion prefer – when given the choice – this method of remunerating their adviser.
The report also reflects on the impact on the community and advice sector that banning risk commissions has had in other countries including Finland, Denmark and, more recently, the Netherlands, where each has experienced a significant reduction in adviser numbers.
The insurer has used these research findings to call for industry collaboration when it comes to the framework that will inform ASIC’s 2021 review of life insurance advice and the impact that the Life Insurance Framework reforms has had on the quality of advice consumers receive.
…we often see the paradox that the time when cover is most needed is also the time when household finances are most challenged
In making the call for industry collaboration on ASIC’s 2021 review of life insurance advice, Zurich’s Australian CEO for Life & Investments, Tim Bailey, noted, “To the extent that demand for life insurance generally coincides with major life events, …we often see the paradox that the time when cover is most needed is also the time when household finances are most challenged.”
He continued, “Mandating an out-of-pocket fee to people in such circumstances, from 2021, is likely to put expert life insurance help out of reach at the worst possible time for them and would likely see people with inadequate or inappropriate cover, or worst still, no cover at all.”
Bailey also emphasised that a major priority for insurers and the advice profession, in partnership with ASIC and the Government, should be to help create a consistent and robust evidence base to be used by the many stakeholders who will shape the sector over the coming years.
Zurich has made its research white paper, The Risk Advice Disconnect, available to advisers via its national BDM network team.