MLC Life Insurance has released a statement in which it strongly argues the case for the continuation of life insurance commissions.
The insurer’s statement, penned by its Chief of Group and Retail Partners, Sean McCormack, focuses on issues surrounding the ongoing viability and sustainability of life insurance advice.
In a reference to the Banking Royal Commission’s recommendation 2.5 on the future of life insurance commissions, McCormack notes that it’s debatable whether underinsurance should be the anchor for the 2021 ASIC review (see: Royal Commission Flawed Rationale…?). “After all,”, says McCormack, “…the LIF reforms that took effect in 2018 were intended to improve the quality of advice by addressing the findings of ASIC Report 413 Review of Retail Life Insurance Advice. This would presumably be an appropriate and worthy focus of ASIC’s review,” he said.
While acknowledging from the outset that client interests have to come first, McCormack also states his and his company’s strong belief in quality, lifelong financial advice. While he says the insurer supports ASIC’s 2021 review of the impact of the Life Insurance Framework remuneration reforms, McCormack adds:
…reducing commissions to zero has the potential to make advised life insurance unsustainable
“…we fear that, without a robust alternative model, reducing commissions to zero has the potential to make advised life insurance unsustainable. Perversely, this could actually increase the risk of Australians relying on insurance arrangements that are not optimised for their circumstances. Moreover, because it is likely only those Australians who are prepared to pay some kind of fee that will receive life insurance advice, those with lesser economic means will be most affected.”
Emphasising the issue of the affordability of financial advice, McCormack noted that clients are served in some way by risk commissions because they offset the cost to access financial advice. He said that, like any professional service providers, advisers who provide value to clients deserve to be adequately compensated for their time, service and expertise.
In articulating research that breaks down all the component elements and their associated time, effort and cost involved in packaging a life insurance advice services, McCormack points out that this only relates to up-front advice: “Good advice doesn’t stop once a client gets cover,” he said, adding, “Often absent from the commissions debate is the important, ongoing support advisers provide to their clients. This work goes to the heart of what represents good advice.”
Good advice doesn’t stop once a client gets cover
He says advisers cannot provide their initial and ongoing services and support without a remuneration arrangement that will sustain a business, and argues this is what renewal commissions paid to advisers by insurers recognises.
In reaffirming the insurer’s concern about risk commissions ‘reducing to zero’, as speculated by Commissioner Hayne, McCormack says MLC Life Insurance is in favour of a robust system that gets good insurance solutions into clients’ hands, and allows advisers to make a reasonable and sustainable income: “Currently, commissions play a part in that model however, if we’re going to move away from them, then we need to be very clear about how the new system is going to work. It is not clear at the moment what that new system looks like or how it will work.”
McCormack says his company urges the Government to carefully consider the way in which this recommendation is implemented. “If there are to be changes to commissions, any alternative model has to be viable for both clients and advisers.”
MLC’s recommendation, says McCormack, is to put the client in control and offer choice:
“Where a client wants to have the cost of their upfront advice offset by commissions, and to keep commissions in place to ensure ongoing support from their adviser over the life of their policy, they should be able to do so. However, if clients are comfortable to pay a fee, product manufacturers should provide a reduction in premiums that reflects the lower cost to them when commissions are removed. This reduction should be both upfront and ongoing,” argues McCormack.
Click here to access the full statement released by MLC Life Insurance this week, in which McCormack concludes by noting:
“MLC Life Insurance believes that Australians are better off with access to good, ongoing financial advice, and we support a sustainable advice sector in which commissions currently play an important role.”
MLC’s position follows a similar statement released recently by Zurich, also in support of the continuation of life insurance commissions (see: Zurich Call to Retain Risk Commissions).
Belatedly MLC joins Zurich! Where are the rest – AIA, BT, TAL etc. And note there is a tacit endorsement of the reducing commissions under LIF, which combined with FASEA will destroy risk advice businesses. Endorsing the continuation of commissions per se as the pre-eminent remuneration method for risk advice will by then have the sincerity of a politicians promise
The life insurers have seen the reduction in retail business volumes as a result of LIF and can see the consequence of zero commissions on their long term viability so they are speaking up now. No response yet from the Financial Services Council the umbrella body for the insurers which is puzzling. Are they engaging with politicians and educating them about the consequences of a zero commission world?
Where are all the other insurers coming out saying the same thing as MLC and Zurich …. they are all pathetic.
See how the Mortgage Broking industry all stood up as one and was supported by most lenders recently about their potential cuts to commissions. There were even campaigns to sign on to arguing against it.
The current government has now done a backflip and wont cut their commissions. Why does the Life industry not have the same support?
The income to all insurers has dropped dramatically since the introduction of 1/ greatly reduced commissions soon to be 40% less tha 3 years ago
On top if that No2/ 2 years responsibility period with no room to negotiate when an issue comes up that cause a lapse you have no control over
No wonder advisers do not want to risk putting clients into cover when their whole structure could be wiped out by a few unforeseen large lapses
Not sure about the others but CommInsure has stated they have paid out near to 1 billion dollars how can they or any other company survive if its dropping off one end and not coming in the other
All insurers should have put more thought into the repercussions of this LIF excercise instead of sitting in the corner while the FSC charged ahead with their so called best interests at heart
Today I read the banks have little chance of having the charges directed at them recommended by the Royal commission carried out or investigated further
What a letoff for them at the expense of their back bone if new business introductions ( the adviser )
It’s good to see them starting to shiver at the thought of multi million dollar claims and no new business to help offset it
If anyone is interested see what the commission structure in New Zealand and the UK is it will absolutely surprise you
Let’s see who joins the line now that the cat is out of the bag ??
My info is the aggregators funded the pro-commission ads for the mortgage brokers, because the banks see profit and market share in the status quo. The banks leaned on the Government, who remain pro-bank. But the banks want to kill self-employed risk advice.
Over at Westpac they will retreat from investment advice but insurance is now WITHIN the bank in the loans area. Insurance sales will be on GENERAL ADVICE ( still much loved by ASIC despite the RC/Freedom recommendation) feature poor quality products compared to retail, and may involve robo advice. THE BANKS ARE RETAINING INSURANCE, and you can bet some of our insurance “mates” will be lining up for insurance deals with the banks, at the same time making soothing noises they think riskies want to hear.
So far its just motherhood statements about commissions in principal, BUT NONE OF THEM HAVE SAID LIF HAS NOT WORKED AS THE FSC PLANNED. What we want is a “courageous” CEO of a life company to grow kahunas, acknowledge the elephants, and come out advocating 88/22 upfront with a ONE YEAR CLAWBACK. Then we will only have FASEA to worry about
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