The FPA has reinforced its support for the retention of risk commissions in rejecting calls made by a number of consumer advocacy groups to ban all remaining conflicts of interest in the advice sector, including life insurance commissions.
A statement released by the association on the eve of its 2023 Congress warns that banning risk commissions will leave more consumers chronically underinsured.
Expanding this warning, FPA CEO, Sarah Abood, says banning commissions would effectively be removing consumers’ ability to choose how they wish to pay for their advice:
“Multiple research studies have shown that a high proportion of consumers would not purchase insurance at all if they were required to pay an upfront fee,” she said, noting the result would be that far fewer Australians would have appropriate insurance protection in place.
This is a problem not just for the individual but for our whole society…
“This is a problem not just for the individual but for our whole society,” added Abood, cautioning this would leave many Australians entirely dependent on the social security system in the event they became ill or suffered an accident and were unable to work, or where a family breadwinner passes away.
In its statement, the association cites NMG Consulting research revealing that retail advised new life insurance business volumes have more than halved since the Life Insurance Framework reforms commenced, and that further reductions are expected over the next few years, driven by a number of factors, including:
- The number of financial planners who provide life insurance advice has declined substantially in recent years
- Substantially reduced adviser remuneration from individual policies since the Life Insurance Framework reforms were introduced has made it economically unviable to provide life insurance advice to younger Australians where the premiums are lower
Abood says an effectively unintended consequence of these circumstances, risk advice is focusing increasingly on older Australians, thereby “…increasing the risk of the overall insurance pool and ultimately driving up premiums for all.”
The FPA statement reiterates its support for all the proposals made in the Quality of Advice Review paper on conflicted remuneration, including the proposal to leave the Life Insurance Framework model unchanged.
It also reiterated its support for the continuation of the existing exemption on life insurance commissions under the LIF reforms…
Could someone point out to these “Consumer Groups” how banning commissions will work in practice? If a consumer now needs to pay a non tax-deductible upfront fee for the adviser to write the SoA and place the business, what happens if the underwriter declines the application or issues varied terms with an exclusion or loading that the client doesn’t wish to pay? Assuming a consumer would pay $2500 after-tax for the privilege, how are they ‘better off’ than if they paid via a tax deductible premium? (I’m ignoring trauma cover for simplicity)
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