Overwhelming adviser feedback suggests the removal of risk commissions in superannuation will have little to no effect in reducing costs and/or increasing superannuation savings.
In response to our poll question:
Will banning risk commissions in superannuation lead to lower insurance premiums?
65% of advisers believe premiums will not change, and a further 19% say there will be a slight premium reduction.
Only 10% of those who voted say that banning risk commissions in super will have a significant impact on insurance premiums, while 6% are not sure.
What most advisers appear to be saying is that removal of the commission component from superannuation risk premiums will not see an equivalent increase in savings or reduction in costs.
The general thread of the argument is that someone still has to pay for the advice, which has a value, and that ‘someone’ will ultimately be the superannuation member:
“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”
…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
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
Another argument is that if commissions are removed from superannuation risk premiums, life companies will simply not reduce the premium by the full amount saved:
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
A number of advisers also question the nature of the claims process, arguing that the sometimes considerable costs associated with the time and effort put in by advisers in representing their clients interests at claim time are paid for by part of the commission they receive in every policy they write:
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.
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).
There is also a general mood felt by advisers towards the influence of industry funds:
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.
This feeling of adviser isolation can’t be helped by a statement contained in the first of the Cooper Review Panel’s, ten Super Policy Principles, which indicates a possibly pre-conceived and negative attitude towards advisers:
“The superannuation system does not exist to support intermediaries.”
Of the 10% who believe risk super premiums will reduce significantly, this comment summarises the argument:
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!
Other feedback paints a gloomy picture when looking at the underinsurance dilemma. The argument centres on the premise that life insurance is sold and not bought, coupled with the contention that if the client is not prepared to pay an additional fee for superannuation risk advice, then financial advisers will not be serving this market, and less insurance business will be written.
It’s time to have your say if you have not done so already…
