The Life Insurance Framework (LIF) is a pragmatic compromise between those who want to see the banning of commissions and those who want no change within the life insurance sector according to research and advisory group, Rice Warner.
The group stated the recent announcement by the Assistant Treasurer Kelly O’ Dwyer of a two-year clawback under the LIF model represent the government’s response to the Trowbridge report on life insurance, following “a scathing report by ASIC in October 2014” which called “for an end to the misalignment of financial incentives offered to financial advisers and licensees (dealer groups)”.
Rice Warner stated the policy announcement by O’Dwyer would lead to improved efficiency in the life insurance sector, which would be allowed under an amendment to the Corporations Act to rationalise legacy life insurance products.
“Many life agents will moan about the reduction in upfront commissions but …higher renewal commissions, being recurrent income for the practice, will add value to their businesses.”
The group also stated that further competition and reduced premium rates were likely as maximum commissions would become the standard default commission across the industry and as more banks left the life insurance sector and focused on offering third party insurance products instead of manufacturing them internally.
“Many life agents will moan about the reduction in upfront commissions but smart dealer groups will realise that the higher renewal commissions, being recurrent income for the practice, will add value to their businesses,” Rice Warner stated in an industry overview paper.
“It is likely that more banks will follow the lead of NAB and exit the manufacture of life insurance to release capital. Their customers will get better choice if more products are offered and the bank will take commission, which will be more stable income than profits on this business.”
