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…







