Will banning risk commissions in superannuation lead to lower insurance premiums?
- No (67%)
- Yes - slightly (19%)
- Yes - significantly (9%)
- Not sure (5%)
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…
Add your comment now
42 Comments
IF you drop all commission there will be a small saving for the client however you still need to be paid for your advice.A fee for service on personal insurance attached to super will result in the over all cost of insurance cover funded from super being more expensive and less money in super. Well done Cooper you moron
the client still needs to pay for the advice/service so banning commissions just means clients will still pay more and that means fewer clients will get insurance-once again too much information not enough wisdom
Real life example commission following more than three hours work $809.61
Fee for service for same work and time frame $1,002.00
Is the later more than the commission?
And…if commission is removed on this type of advice is it the thin edge of the wedge will commission be removed from pure life risk and general and then the logical next step is commission being removed from real estate, car sales etc etc
Result cost blow out social security blow out unisured Australians I for one would welcome a fee for service because advisers would then get true returns for thier experience.
Dont the politicians involved have anything better to spend their time on?
It is undeniable that if the savings in commission are passed on premiums will drop significantly. What will also happen is a collapse in insurance sales. If there was a consumer retail market in Life insurance advisers would have been trampled in the rush to on-line offerings direct from vendors.
Those vendors know consumers need to be sold the value of owning an insurance policy and that until that is done the cost is irrelevant.
The advisor commission on a wide screen TV, or holiday flight is much lower than the advisor commission on a Life policy for good reason. Most insurance is a grudge purchase, “I know I need it but I wish I did not” and the value of it needs to be sold and that service has commercial value.
Yes premiums SHOULD drop by the amount of the commission portion.
But, skeptics would vote No because they expect insurers to expand their profit margins. So to achieve the correct premiums reduction the we need an even more transparent disclosure regime on the insurance in advance of the commission ban. That way after the ban comes into effect it will be obvious who is gauging profits.
I ask “Who do the politicians talk to for Risk Insurance advice whether it is through Superannuation or not?” Give them an exercise to go out into the real world and obtain a quotation. End of story!
Advisers are often able to negotiate premium and other fee discounts for their corporate super clients, so in this are premiums will probably not reduce if commissions are banned. The consumer will have lost their advocate. They will probably be under insured, and who will negotiate the best outcome for them at claim time? I doubt the insurers will pay a cent more than they absolutely have to.
I dont think it is unreasonable to ban commission on any Superannuation Guarantee product as it is a mandated payment for the benefit of employees. However, I think there needs to be a clearer distinction between SG and any other type of super. Pure Risk super for example is generally only suitable for self employed people yet there is VERY little in the Cooper review relating to small business. If commisson is removed from this product the government will, in effect, be forcing advisers to choose between recommending life risk under super (that we dont get paid for) and ordinary life cover (that we do get paid for). It will be a conflict of interest created by the Labor government. If we are doing our job properly then will have to charge for establishing the life under super, then we receive commission for establishing Trauma etc. Ridiculous!
At the end of the day, someone has to pay for the cost of placing the cover, advising the client, working through the underwriting processes, etc. If this is done by non-commissioned advisers, fees will need to be charged, so no cost saving. This is likely to diminish the number of advisers, so more cover will be purchased directly from the insurers, if at all. That will mean higher cost for the insurers in dealing with those clients with more staff needed, so the cost to the consumer will be about the same. Cooper seems to be confusing perception with reality. People don’t buy insurance, they need it to be sold to them, hence a commission system. Commission potential is what drives an adviser to encourage people into insurance to assist in the underinsurance problem, not fees.
I’m sure any life insurance company would stop using advisers as a distribution channel in an instant if they believed they could operate a tied field force (salaried advisers) cheaper. They choose to market through an adviser network because it’s cheaper and carries less risk. If new business dries up because advisers dont want to offer a life under super product that they are not going to be paid for then the insurers will have to establish a more expensive and riskier tied field force.
banning commission will significantly reduce the amount of insurance sold, and the insurance premiums will not be able to stay the same, more than likely to go up.
If you ban commissions on life cover via Super, there will likely be less take up of insurance as advisers will not be fairly compensated for their advice and the underinsurance problem will grow.
This will lead to a drop in overall premium income. Therefore claims as a percentage of premium income will be higher, forcing insurance companies to incease premiums!!!
How can premiums decrease? Life companies such as Asteron, Tower, Zurich, AIA that rely heavily on IFAs will see their sales figures decline, leading to reduced profits that will need to be subsidised by at least maintaining premiums at the same rate.
But then again they will probably not exist as the salaried bank staff will be the only “advisers” left to discuss risk. Lets not forget the Industry Funds and the solid advice they give to members, yeah right!
I`m sick of this agrument. Just vote the Libs in at the mext election.!! What have the Labor Party ever done for our industry.!! NOTHING.
Under insurance is nothing short of an epidemic in the country. 95% of the clients I provide advice for have severely inadequate insurance. Without my advice, they would still be under insured. Where’s the first place a surviving spouse is going to go if there’s not enough money when their spouse passes away???? I’m with Chris W, vote in the Liberals and be done with it! Gillard is just another face of uselessness!!!
The premise seems to be that if you lower premiums by cutting commissions then you will not have underinsurance. Wrong! Australians are underinsured because they get no advice about insurance under their super funds. There are not enough FP’s willing to properly address this issue in their plans and not enough risk specialists out there writing policies. Premiums are not an issue when risk is properly explained to clients. There are just too few of us doing it.
Hey, why don’t we all just work as salaried employees for a Bank, linked to just one insurance provider and received bonuses on volume of sales, I ask sarcastically?
Of course the premiums should decrease, there shouldn’t be any argument over that. But the recommendation is such short-sightedness on what clients need and are happy to pay for.
If Cooper and the Labour government succeed in banning commissions on risk product we will not only see a significant increase in underinsurance we will also see deterioration in product quality. If you don’t believe me just have a look at the total disability definition used for salary continuance policies in some of the so called we don’t pay commissions super funds.
I am reminded of the phrase “If you pay peanuts you get monkeys”.
High quality life insurance products require a strict underwriting process so that the life company can assess the risk that each individual brings to the pool. This strict screening process allows life companies to offer a good quality definition in their products and still make a profit. Super funds or any other organisation will find it very difficult to sell insurance product with a strict underwriting process over the phone. People won’t buy cover through intra fund advice over the phone or by calling an insurance company after viewing a TV advertisement if the underwriting process is difficult. Most people will only commit to a more rigorous underwriting process when they have a one on one personal relationship with an adviser. Of course the adviser also has to have an incentive to encourage and guide the client through the underwriting process. Remember life insurance is not a shinny tangible product that clients actively buy, rather it is a product based on a promise, it has to be sold therefore it is very difficult to see a client paying a fee to have insurance sold to them.
In Cooper’s new world, insurance products will be sold over the phone via intra fund advice or over the counter with a bank or super fund employee. The personal relationship won’t be there and the employee won’t have the same level of incentive as a self employed adviser. Therefore it will be necessary to make the underwriting process easy to sell the product. To make a profit insurance companies will most likely reduce the quality of their definitions to make the claims side of the policy more difficult. Surly this would not be good for consumers.
I think it is quite evident that the Cooper recommendations won’t bring a better outcome for the consumer because they are not based on a balanced logical belief that provides incentive for business and competition in the market place to drive consumer benefits. Rather the Cooper recommendations are based on Socialist ideology which destroys incentive for business so that the state gains more control.
Commission is an efficient “distribution” cost as it is only paid for results. The banks and insurers will be forced to replace these “savings” with higher premiums as they employ more people to market and distribute their product. The cost of regular queries and issues previously handled by those “greedy commission sales people” will now be brought in-house. And if you have ever compared the cost of those “direct mail” insurance offers, the cost is generally more expensive and the benefits are inferior. Congratulations and well done!
Let me get this straight. I can arrange a $1,000,000 term insurance policy which is self owned (and paid for with after tax premium dollars) or it can be owned through Super (and paid for in many cases with pre tax dollars). Same policy. Same premium. No investment to raise or lower. Yet I get paid in the first instance by the company but in the second the client will have to pay me a fee on top of the premium? Do these people understand that Super doesn’t have to involve savings?
Historicly advisers have accepted the commissions as total payment for Advice and Service. In a client pool the higher commissions supplement to lower ones. By taking out the commissions a new payment option has to be implemented to cover the advice and service. This payment will have to come from the clients hip pocket or out of his/her super fund. That amount that needs to be paid will in a lot of cases be higher than currently asked of them or payed from his/her super fund. It will more than likely cause the balance to deteriorate at a higher level than under the current position. If the general public was presented a questionaire on this what would be the answer?? I think the vote would be to keep the commissions. Maybe we should be putting it out into the gerneral arena to see what the general public think. Some politicians might think twice before try to mess with a system that is working well. Lets stop talking amongst ourselves and get the general public involved. After all they are the bigger voting public than us and they are the ones who will have to pay the fees.
reduction of commissions will force advisers to charge a fee in lieu of commissions. In order to survive, advisers must be profitable. The public is not used to paying fees for risk advice and will either take no action, or be drawn to the industry funds, with poor or little advice.
The issues of trail commission should not be overlooked in this debate. Receipt of trail commissions entitles my clients to ongoing service, and assistance with claims. Those of us who have had claims experience appreciate the many hours involved in assisting our clients with claims and dealing with insurers on their behalf.
If commissions are removed, we will have to charge our clients for the time involved to deal with claims.
Sadly many clients will not make claims due to lack of assistance from advisers, and this will not enhance the reputaion of advisers and insurers.
Clearly the labour government needs to go, so vote them out. Get out there let your family and friends know the government wants to put you out of business. Go see your useless MP if they are with labour and tell them you are going to put them out of work. Explain to that worthless Labour MP those of us that are self employed will be replaced by overseas call centre staff, industry fund websites and don’t call us we will call you call centres and Bank Salaried Advisers. The government will have a pool of unemployed advisers that they can hire to work in Centrelink, to cover the influx of people on handouts.
Cooper’s review is driven by political thinking; how to reduce commissions and the cost of advice so that workers keep more $ in their super fund. With this aim in mind, I agree that all comms on super might be removed for national advantage, but to apply the same rationale to all insurance commissions is facile. Insurance premiums would go down …competition would ensure this, but coverage of the workforce would not go up. It would go down! That’s because insurance is not sold on price, it is sold on the fear and emotion of potential loss and that is OUR job to explain! Without remuneration of advisers the under-insurance problem in Australia would GROW! And that would be to a national DIS-advantage. I agree that ACTION is required by us, through 1/ your local member, and 2/ our professional bodies.
We know the former Rudd government and the likes of Cooper and Bowen do not like the way advisers work and they believe that reducing commission is the answer to boost retirement savings. BS. If anything people now pay for advice and taking away commissions from insurance products will only increase this, which means less people will be able to afford advice, which will increase the spending of Govt. revenue to support retiree’s in the future. Clients who have not received the right advice becuase they cannot afford to MAY be worse off.
There should not be a ban on commissions.
FOR RISK POLICIES……
All commissions across each policy type should be uniform throughout the industry - if this is the case there is no conflict of interest. It comes down to the premium the client wishes to pay.
FOR INVESTMENT PRODUCTS ……
ASIC should limit the entry fees and MERs under each PDS - say 4% and 0.60%. Commissions then can be a maximum % of these fees across the industry. Clients can then decide whether they want the benefit of an adviser and pay these fees or ‘do it themeselves’ through the Industry funds or default fund. What our industry needs is a uniform ‘fee’ scale similar to accountants and solicitors. I dont have to use an accountant or solicitor but I know that I am taking the risk by not doing so!
I have yet to meet a client who is concerned about what commission I receive or how I get paid - they want the bottom line - what it’s going to cost them!!
Vote Liberal.
I hate to think how much time and money has been wasted by the government and our industry on this issue since Day 1.
And they say tax deductibility of fees is too expensive !
Advice is essential- its absurd to think that novices will not make mistakes & make decisions based on something they heard at the hairdresser or fellow workmate!! Seeking advice should be mandated as per going to a Doctor to seek a script for medication. There needs to be another set system to cover advice fees (if not commission)- clients are reluctant to pay out of pocket. All other industries where risk is involved requires professional advice- electrical/ medical/ legal. Skip the debate to destroy the industry that works fine as it is!!
Vote Liberal so we can get away from absurd attitude that anyone earning more than a Ford worker is a crook! If this industry is so well paid and easy- everyone would be doing it. There arent enough advisers as it it!!
Here we go again…more planned legislation based on idealism, regulation and control. Forget the community betterment, the value and real contribution of advice in our dumbed down,time poor society. On the 21st of August, just do what you must do, and feel good about it!! I certainly will be following my own ADVICE!!
Amazing that even with us being paid 22% commission insurance is still invariably cheaper than majority of industry funds insurance! Now how can that be chaps? Insurance through super is also significantly cheaper than via a retail insurance policy. Another bloody disgraceful govt decision no doubt due to $50 mill add campaign by Industry Super Funds who must know what crap they serve out. Hows the MTAA travelling? How about the alternative asset allocation model? Who does the adds for the ISF and govts woeful anti mining adds - yep the same Shannon agency. Look up the trustees of the ISFs and follow the connection to sitting Labour members or lackeys. What a COI joke. Costs will rise and “working families” will go backwards not forwards. Anyone who voted for these cretins in 2007 is a dill.
On my reading of the Cooper report there is no grandfathering for existing insurance in the recommendations! As such, this is potentially the most disgraceful “land grab” ever put forward to a government. Watch as the insurance companies and fund managers stand by, hand on heart and swear that they’ve tried but failed to convince regulators to stop this change.
Imagine for a second that you manage an insurance company. All of a sudden, you are forbidden from paying any further commission on your existing book of business within super. How many salaried advisers will you put on to support the existing customers? How many to help with claims? Did I mention your manager bonus is dependent on profits? That’s why it is obvious that premiums will not drop substantially if this measure gets in. If Cooper really cared about the members he’s supposedly protecting, he would have insisted that premiums drop exactly in proportion to the reduction in ongoing commission……..but there’s no mention of anything that simple.
If you haven’t already calculated the cost of this land grab to your business, you should. And then you should get very very angry.
Cooper states that the ’super industry does not exist for intermediaries’. Does the health industry exist for the benefit of doctors, pharmicists etc??? No it doesn’t, but it can’t operate without them either. Most people, especially in the category of people they are supposedly trying to protect, would spend more money each month on their car, phone & data package, loan repayments and even petrol then they would on super/insurance, including the compulsary contributions. Where is the crusade to wipe out the profit margins (commissions) on all of these items and services. Reduce those costs and the people will have more money available for their retirement. Left wing lunacy!!!!
“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”.
This dimwitted comment by the Cooper review panel shows us just how dumb and out of touch the people on this panel are. These people obviously have no or very little idea about how insurance is sold and implemented. Either that or they have a hidden agenda.
If insurance was ‘logical’ they wouldn’t have to employ highly skilled actuaries to determine premiums, pricing, and claims.
DOH!!!
One undeniable fact when it comes to Insurance,is people spend more time thinking about what they will order for dinner at a restaurant, than how much insurance they should have.
Because of this mindset,Insurance premiums will rise,not fall if commissions are banned.WHY?
If people do attempt to buy insurance,after seeing or hearing a advertisement,they always get the wrong amount and type of insurance they need,unless they get correct advise.
If they deal direct with a online or telephone insurance provider,the moment there is a medical issue,it becomes difficult and requires a experianced adviser to talk the client through the reasons why they have to do all this medical stuff, which is confusing and for many people too much hassle. Lets face it,most Australians have had medical issues at some point in their lives, which leads to a increase in premiums because of the huge increase in time and expense to fully underwrite and fairly spread the premium risk amongst all policy holders.
Advisers and their staff do a huge amount of work for the Insurance Companies to procure and mediate,administer,then finalise the Insurance policy, which will still be required to be done, whether or not commissions are paid.
If commissions are banned,Insurance Companies will need to employ staff who will need to be paid salaries, with all the business on-costs,meaning higher insurance premiums,no client representation,(as self employed advisers will not be able to work for free)and to top it all off, a much worse Insurance coverage for all Australians.
John, in (6) above refers to “the real world” and “politicians” in the same sentence.
John must be one of Australia’s greatest optomists
Comment 1: Client Savings by reducing commissions
The maximum premium saving by removing commissions from protection in Super will be 20 to 25%. This is based upon the current structure, where if an adviser elects to receive no commission the premium reduction is 20 - 25%. I do not believe the insurers will pass 100% of this savings on, and are more inclined to reduce by 15 - 20%.
A person on average holds on to their risk protection cover for a period of 7 years. So based on a $1,000 premium, the cost savings over this period of time would be ($1,000 x 20% = $200 per year, for 7 years $1,400) $1,400.
In putting a risk protection strategy into place, where fund and risk protection providers are investigated, takes an adviser on average 6 hours. The cost to an adviser (not taking into account profit, only the bare cost) assuming a small practice of 3-4 people is $150 per hour. $150 x 7 = $1,050. Therefore an adviser will need to charge an upfront $1,050 to save the client $350 after 7 years. This averages a saving of $50 per year over that 7 year period.
Pose this question to the public: “would you rather pay $200 more per year in premiums for yuor cover, from which you may be able to claim a tad deduction on, or would you rather pay an adviser $1,050 upfront to devise a strategy, which over a 7 year period will save you around $350″. In addition to this, within this 7 year period your circumstances will surely need to be reviewed, from which a fee will need to be charged, thus wiping out the $350 saving over the 7
year period!
Comment 2: View on consumer response
In light of the requirement to pay an up-front fee for advice, and another fee upon review (insurance only), I believe this will influence people to set their own insurance strategies in place.
Australia already has a major under-insurance problem, this will just inhance that.
In additon, nothing is mentioned about the cost savings or income tax savings or estate planning piece of mind that is obtained by people who do seek strategic advice.
I do not say a fee should not be charged for advice. I believe the consumer should have the option of how they would like to receive the advice and how they would like to pay for the advice. As long as the cost of the advice or implimatation of advice is clearly disclosed and agreed to.
All this BS encourages people to buy insurance directly with the Insurers. As this occurs insurers will make the underwriting process simpler so that the consumer has a better ‘experience’ over the phone. What the consumer doesn’t realise is that with this simpler underwriting process comes:
1. increased underwriting ‘risk’ for Insurers
2. retrospective underwriting at claim time
3. increased premiums to cover the extra ‘risks’ borne by Insurers.
The government’s idealist views are not so ideal afterall !!!!!
risk in super sold through advisers (ie not sold by the so-called not for profit funds) currently pays a low rate of commission. If commission goes on those products I won’t be providing the service. Underwriting costs will go up, admin costs for insurers will go up, particularly if the insurer go to a system of salaried advisers.
No fee no service. Why should I care - the govt doesn’t.
Let me give you an example of service that is currently being provided to innocent workers. A very large super fund which recently changed insurers was contacted this week by the mother of a 24 year old who had been left pregnant and with a 4 year old child by the death of her partner in an mva. He was a member of at least 5 funds but none of them had ever contacted him about life insurance for his family.
So now the mother of the widow is trying to help a distraught daughter to approach a number of super funds from which the deceased was a member. It’s a long process and they have been able to identify 3 funds, one of which is the large fund mentioned above.
The 2 smaller funds were as helpful as they could be. The large not for profit fund who has recently changed insurer effectively refused to help, refusing even to identify whether or not the deceased had insurance cover and to what amount.
This attitude was exacerbated by the fact that the information was being conveyed by someone who clearly had English as a second language and could not communicate effectively to answer the query other than to repeatedly say that the fund could not and would not provide the insurance information. It wasn’t a question of supplying appropriate documentation, but given the recent circumstances of the change of insurer, it would appear there has been a massive break down in the internal administration system of the fund.
If I or any other adviser who reads this forum had been involved we would have torn strips off that fund and if necessary gone all the way to the top office to insist that our client not be treated like a piece of crap. This is what we will have if advisers do not have a pecunery interest in life risk in super.
I won’t do it for nothing even though I am giving pro bono advice to the mother as to how to get around the system. In this case a FOS complaint may occur and that costs everybody.
In the meantime an emotionally distraught 24 year old with 2 children is sitting at home thinking the super system is bullshit.
You will see her in the CentreLink queue in a few weeks.
Firstly they will be forced to decrease their premiums in line with the reduced costs.
Advisers are there own worst enemy and up front commissions are the real reson they are being attached. Make all commisions paid into level commission and you get rid of the conflict of interest that is obvious to all except advisers.
I strongly support commission as the most effective way to remunerate risk advisers however we must clean up our own backyard first and move to level commission only.
The Global Financial Crisis created the perfect opportunity for the Socialists in our country to come out of the woodwork and push their agenda of ever increasing state control. This is evident in the paternalistic nature of the Copper review. It appears quite evident that Cooper and the Labour government do not believe in free markets as they intend to use violence in the form of legislation to break down the financial services sector and deliver our clients into a system controlled by the unions and their Labour puppets. This is a worry for our families, staff members and clients.
A few keys points on level commissions per se
Firstly, there is a breakeven point of about 5 years before level catches up with upfront in the retail area ( I cant speak for corporate super, but I thought most of them had level commissions), assuming upfront is around 100%. We run a business, and we need the money to meet our costs NOW - creitors dont wait
Secondly, level commision would eliminate young advisers entering the industry without being in some sort of employee basis. Difficult to build your own asset base as an employee !
Thirdly, the reason why I don’t like level commission is because the life offices will give me no protection that some glib-talking, inducement offering, scum bag financial planner won’t ask my client to sign a transfer of adviser form, often on the pretext of seeking ” information “. This practice is rife now more than ever, investment clients are being duped when asked to sign release forms, and for the ” Planner ” its an easy way to pick up an income stream. Even more valuable if the trail is 30%, not 10%
Fourthly, I don’t trust life offices, period. Right now our ” friends ” apparently see a political and financial advantage not to publicly back the commission system on risk. Our ” friends ” have short memories, conveniently ignoring that the wealth now in their companies could never have acquired without the involvement, over 150 years, of advisers who the life offices only paid if a policy completed. Advisers took the risk, not the insurers.
Remember commision rates can be changed prospectively AND retropectively-READ AN AGENCY AGREEMENT, or ask your dealer to provide a few.