The Future of Risk Commissions – Your Say

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What is the most important initiative you would advocate in response to the call for the industry to move to level commissions only for life insurance advice?
  • Retain upfront commissions but black-list serial churners (36%)
  • Support a move to hybrid and level commissions only (33%)
  • Retain upfront commissions but restrict to level commissions only for replacement business (12%)
  • Support a move to level commissions only (7%)
  • None of the above (6%)
  • Go further and ban all life insurance commissions (4%)
  • Move to a commission model based on quality of business (2%)

The focus of our latest poll is FSI Recommendation 24, part of which calls for legislation to restrict life insurance commissions to level commission only. We’re keen to hear what you think is the best way forward.

For advisers and other industry stakeholders who think the removal of all but level commissions is an unrealistic scenario, the FSI final report also warns that if level commission structures do not address the issues in life insurance (that is, churning and poor advice), Government should revisit banning commissions entirely.

Given this uncompromising approach that supports either drastically restricting risk commissions or banning them all together, what would be your response if you were in a position to influence the outcome of this debate?

Does your preferred course of action also reflect what is in the best interests of your clients? And do you think FSI Recommendation 24 will become a catalyst for significant long-term change to the way advisers will be remunerated for delivering life insurance advice?

There are so many issues in this debate that are linked with other industry issues. These include the status of the FoFA reforms and the ability for advisers to be able to deliver affordable financial advice, as well as the implications stemming from the recent release of the ASIC Review of Retail Life Insurance Advice.

Attempting to sort through all the layers associated with these sometimes inter-related issues can become quite complex. But keeping in mind the basics of how to build a successful advice practice while serving the best interests of your clients, tell us how you would respond to FSI Recommendation 24.

Your reasoned and thoughtful comments, which address the issues, not individuals, are much appreciated…



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9 COMMENTS

  1. Continuous debate on this has resulted in moving form banning commissions to a fee-based structure. It didn’t work in the UK and they’ve moved back to commission.

    Where and when will all of this end? As if our industry isn’t already beset with mountains of paperwork, compliance, code of practice regulations and now we’ll likely be forced to move to being fee-based. Then we’ll find the underinsurance debacle heading for terminal before switching back. The only ones who’ll win from all of this are the people appointed (on huge fees) to make yet another enquiry which will do nothing for the industry and all stakeholders in it, especially for those most affected, the under-insured public. Oh dear…

  2. If you need specialist Brain surgery, do you employ Dr Teo or Dr GP?

    We seem to have many GP’s AKA as FSI and many others, with little or no practical experience in actual face to face selling, maintaining, administration and claims expertise to help clients with their life insurance needs.

    ASIC did 200 file reviews and made a blanket decision, just as the FSI reporting seems to have, that it must be upfront commission is the cause of bad advice.

    WRONG. BAD ADVICE IS THE CAUSE OF BAD ADVICE.

    As usual, the solution is simple.

    1) Determine exactly what is churn.
    2) Get rid of serial churners from the industry.

    The Government made the regulations which now takes many, many hours to comply and has added astronomical costs to the provision of advice, so as we now live in the “best interests” of the client world, then at least have the decency to let us make a living.

    What commission we receive never has and never will stop a few bad advisers from continuing to provide bad advice. So the solution is easy, get rid of them so the vast majority who do the right thing can get on with the Business of helping our Industry and our clients.

  3. Predictions if all comm moves to level.

    1) No new advisers will enter the ‘independent’ risk space. Banks will employ advisers to sell their own products, with a salary package based on advancing future level commissions. Strangely, this will look an awful lot like upfront commission.

    2) There will be a period of intense churning as existing advisers who otherwise can’t survive the change move their existing book into a level comm environment in an attempt to stay afloat.

    3) This will be followed by a period during which little business will move for any reason as advisers discover that they will be required to do 8 – 12 hours work and put their businesses under increased compliance and legal risk for at best, no remuneration or more likely, a pay cut on each piece of replacement business they write.

    4) Of course point 3 means consumers lose out as the likelihood of being upgraded to products which are clearly better value diminishes.

    5) Over time, premiums will rise. There are 2 reasons for this. Firstly, the companies will complain that they have to pay 3 times as much renewal commission as they did in the past. This, combined with the realisation that few advisers are willing to recommend a policy be moved will have some see it as a chance to print money.

    Oh, and for those who doubt point 5, look at what happens to every block of discontinued policies. Sooner or later the parent company announces a rise in premiums due to costs rising and no new business within the portfolio. Imagine what would happen to those blocks of business if renewals accounted for 30% of the premiums instead of 10%!

    I still find it interesting that pretty much every insurer who is complaining that 120% upfronts are unsustainable are happily paying around 220% (or more) upfront in New Zealand. Until they all go broke over there, it would seem their attempts to change Australia’s system based on ‘we can’t afford this’, are without foundation.

  4. Spot on Paul Herring! When will this ever end? Have those who are on about banning upfront commissions ever sat in front of a client? Have they ever completed a Fact Find and a Statement of Advice? Have they ever had to work to get applications through underwriting? Do they have any idea as to how much time is involved in helping a client establish suitable insurance?

    So why are they the ones making the calls?

    What is it going to take for these so called experts to actually understand that banning up front commissions is not going to stop those few advisers who give bad advice? All it will do is jeopardise the future of the provision of advice and therefore contribute to an already dreadfully underinsured society.

  5. There is a certain thing called Best Interests Duty. If you are moving a client to a better product with a lower cost to the client then this is not churning. Sometimes it is in the clients best interest to move.

    They should be focusing on who is providing advice that is not in the best interests of the client and compliance and audits etc should pick this up.

  6. There is only a small group of advisers (probably 2%) that do change policies regularly. The Industry know who they are but some insurers have actively encouraged this practice in the past with special underwriting deals to bring new business to them. They do nothing to discourage this. Also, it has been a race to the top with definitions and to the bottom with premiums (which is beyond the control of advisers (as we do not set rates or policy definitions) which is part of the problem of their profitability as now with more generous definitions more claims are arising. Dah anyone with half a brain could work that out. So now the insurance companies are blaming the advisers for a their profitability problem they created and want us to pay for their mistakes. I don’t think so. Of course the government does not help with laws saying that we must act in the best interest of a client. If we review a client and the policy they have is one that the insurance company refuses to upgrade benefits or increase premiums substantially (due to poor underwriting then claims experience or lack of profitability) that are in not in the best interest of the client and we change to one more suitable and appropriate for the client it it called churning. If we don’t do this then we are accountable and potentially could get sued by a client for not acting in their best interest. Let get the facts right and then work together for the sake of the public.

  7. The industry talks about underinsurance and alignment of interests so why not only offer level comms for customer that are new to life insurance?

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