At a hearing of the House economics committee on Friday, life insurers ClearView and TAL faced questions from Labor MP Daniel Mulino around how insurers had progressed from the “highly problematic practices” identified in the royal commission and whether there was a justification to retain risk commissions beyond the government’s 2022 advice review.
“I understand the notion that choice [of payment options] makes sense, but there were some systemic problems in the past,” Dr Mulino said.
“How do you feel that it’s possible for consumers to get value for money and have comprehension of the way they’re paying for products where we have commissions in play rather than upfront fees?”
“With respect to commissions it’s an interesting discussion – in some circumstances people pay for the advice directly, and that’s why we are encouraging government to make it deductible,” ClearView managing director Simon Swanson said.
“When you get to people in the 25-30 age group who are taking on significant mortgages, they’ve got to pay a lot for the house, stamp duty and then cost of the advice which is $3-4,000 every time.
“What the industry has done, we have a fixed commission rate so it’s even across everyone – all that is is the insurance company funding the advice fee, it should not influence the quality of advice.
“What we’ve tried to do is keep it simple [so that] people can afford the advice and they can make the decision to have part of it funded through commissions or part directly.”
However, Dr Mulino said it was “unclear” what the justification was for leaving risk commission levels as they were.
“For me, issues around commissions raise real questions around incentives and comprehension by consumers around what they are paying – it’s unclear to me that those are being managed sufficiently coming out of the royal commission,” Dr Mulino said.
Mr Swanson said life insurance was “a complex product” and it was essential risk advice remained affordable, with deregulation also a key component of addressing problems with accessibility.
“It’s a complex product, you’ve got life insurance, TPD, trauma insurance and then income protection, a sickness and accident policy that also covers mental illness,” he said.
“There is a general-personal advice divide so as soon as you ask a customer ‘what sum insured would you like’, you’ve gone into personal advice and you then have to find out the person’s needs and do an SOA, which is between 30-50 pages.
“The complexity of insurance does require people to get advice… we hope if the government can simplify regulation, it could open up forms of digital advice as well.”
the definition of hypocrisy, a politician taking pot shots at other industries for conflicts of interest.
Its difficult to fathom how the broking industry successfully addressed the commissions issue so quickly post Royal Commission however this tired old pig in lipstick keeps getting trotted out by politicians in the Planning sector ? Risk was once 60% of my up front work and I now haven’t written a policy for 2 yrs as it’s just not viable (that was even before BID and FARSEA !!) Meanwhile the insurance industry responds by increasing premiums beyond the affordability of anyone, which I can only describe as a ridiculous, short term profit strategy that does nothing to address the core issues. Ongoing fees and insurance is just not the answer and yes I could probably justify a decent upfront fee in year 1 for most clients but as a business case why would I bother ?? Additionally, if the industry did adopt fees to help recover costs to write and maintain insurance then I can’t imagine many clients would sign off on annual “fee for service” agreement ??? And does that mean I need to do an RoA each year to justify receiving a fee linked to insurance ? I used to really like writing insurance but it’s just not a viable option as I consider how I will best exit this over politicized but sadly dying industry. Think I will aim for a job in the public sector !!!
Commissions should never have been altered, let alone scrapped. No winners here as even the life insurers did not reduce their premiums and now realise they shot themselves in the foot supporting their demise, Guess who were the main critics of commissions? Yes , correct Industry super funds. Self interest wins every time now to the detriment of the consumer who will pay more for advice. hold on underinsurance. who now will pick up the tab in the event of an early claim?
KUDOS to Clearview for championing the commission issue for advisers! I do hope TAL, ASTERON, ZURICH, AIA, MLC, OnePath et al are reading this. The life companies in general hung advisers OUT TO DRY in FOFA and LIF with reducing commissions and ridiculous 2 year clawbacks of honestly earned income. Still stinks to high heaven – they should be abjectly ashamed of the way they deserted advisers on this two highly important issues!
Just another lame attention seeking clueless uneducated politician trying to get his big mug on the big stage to raise his profile at the expense of hard working Aussies. Nothing more to it.
When insurance is needed most the client is usually the poorest in there working life so to pay a premium and a fee just doesn’t add up
typical leftie mouthpiece – no idea – and total goon. So much for an education –
Industry Super HIDDEN COMMISSIONS are fine though are they Dr Mulino ????
Vertically owned, single product sales, no BID, no FARSEA, no Commission disclosure, most members don’t even get any Advice but still pay HIDDEN COMMISSIONS.
The hypocrisy is beyond a joke.
But that’s politicians, ASIC, etc
Can we start with the assumption that there have been “systemic problems” – what are these systemic problems and who was impacted? How many people? When?. Let’s stop with the assumption that life insurance sales has been some plague on humanity and look at the facts. Removing default cover for young people has far more widespread and damaging impacts on regular people than anything ever done by a life insurance sales person.
Clearly this guy has not read anything about what his peers in the UK did and the outcomes. Pointless trying to rationalise with an ideologue that will never have to rely on personal advice or insurance thanks to an overly generous parliamentary benefits system that is still stuck in the 80s. It will only ring true to him when family is impacted.
The ALP’s policy on life insurance is corrupt, conflicted and psychotic. If they ever win government, the welfare bill and the IP claims will crush the country. Its the main reason I keep my IP renewed…
Considering he holds the very Labor seat of Fraser, maybe he should ask his constituents (who mostly would need insurance more than most) what they would prefer.
Also reading his background on Wikipedia https://en.wikipedia.org/wiki/Division_of_Fraser_(Victoria) it would seem he has no relevant education or experience in relation to financial advice. If he is going to make such massive changes that could have such potential catastrophic impacts on the average Australian, then he should start by studying the industry and speaking to the participants.
At the very least he should sit for the FASEA exam.
Dr Mulino has no idea
This is hilarious from the policy makers. I had a mortgage arranged through a broker 9 years ago. To this day, I have never received as much as an email, let alone letter / review / phone call etc. Meanwhile, the broker has been receiving approx. $1,655 per year in trail commission (“invisible fees” according to Jane Hume), but these are OK, and insurance commissions are not? Every year I review every single insurance client, arranging alterations / assessing appropriateness, and putting through claims. The policy makers have no idea what they are doing, and we are all a bunch of sitting ducks.
Every other industry is OK to charge commissions, it’s just financial advisers that can’t, because according to the Government, we are all as crooked as they come.
I would expect our industry bodies stand up and demand this view then be taken fairly across all financial services including mortgage brokers, general insurers and industry super funds taking money from reserves to pay for advice! It’s gotten to the stage where there is no point arguing the bias decisions but rather demand it’s is across the whole of financial services or thrown out!
probably recommended a line of credit that you’ve never paid down either.
It is astounding that the insurers don’t explain what happens to a premium if the commission is removed. The politicians don’t understand it only reduces the premium cost by 15-20%. So on an average premium in Australia of $1200 the client now pays $1,000.premium plus an advice fee. There isn’t a single instance where removing commission is in the clients economic best interests. The lack of straight talking is astounding…..yet it is always there
Nor is there much understanding of what happens if an adviser is no longer attached to the policy. It doesn’t reduce the premium, because the insurer has to cover the costs of servicing the client.
And then at claim time when the insurer puts up barriers which are easily overcome wby and adviser who knows the system, this client has to pay 30% of their claim amount to a lawyer for a service ususally provided by an adviser.
Without commissions insurances will become more expensive as all the sales, referrals, marketing, complience, and servicing will have to be done internally. There will also be no competition as the policies are direct to the client with no way for a client to compare policies other than to find out who offer these insurances and then call every signle company.
Our politicians are both stupid and selfish and definitely dont care about the outcomes for Australian people
He sounds like a highly problematic MP
How does Dr Mulino explain the three year structural decline in the insurance industry then?
Dr Mulino If as you say the industry is “unclear to you” do some research please. Instead of trying to impose a solution on something you admit you do not understand.
Regulatory overreach is leaving the public exposed through chronic underinsurance. The Royal Commission and Dr Mulino have done nothing to address this. Posturing for further change is destructive unless Dr Mulino can demonstrate with confidence how it helps people obtain insurance they should have.
I’m disillusioned with this industry. I think that all politicians seem to lose sight of what the impact of any change will be on the Australian public. What I do know, you can strip out commissions but it will not mean that insurance premiums reduce. Insurance companies have already shown that dropping upfront commissions has not prevented them from jacking up their insurance premiums.
I think labor politicians need to stop the vendetta against this industry and actually do some research.
Enough is enough.
Labor is simply helping eliminate any and all Industry Super competition. If it means the country is completely underinsured, then I would guess Labor’s next move will be with Industry Super at the center of the solution.
Labor has a vested interest in destroying our profession, as their gravy train runs via the union industry super direct to their pockets, worth multi-millions annually. Anyone who thinks this is ignorance or bad information on Labor’s behalf is delusional.
Industry funds have no shareholders = we keep all the profit….
They have no profit either. They siphon off member’s retirement savings as “expenses” paid to unions, union officials, union PR, union entertaining, and union controlled businesses.
There is a big difference between being not for profit and being ethical.
I just can’t believe this is allowed to happen we all know it we’re happy to exist together but they are destroying us time for our industry bodies to demonstrate kick backs don’t count and call this out!!!
These guys really seem to enjoy being in Opposition.
Being in Opposition is far easier and a lot more fun that being in Government (which is too much responsibility and work). Yes, over the past two decades the ALP/Green coalition have certainly taken to the comfy sofa that is Opposition. I don’t think Peter Johnson and the AIOFP will be able to drag them off that comfy sofa anytime soon.
Whomever is answering these questions for the advice profession is doing a sh8t job! The only way to get paid commissions on insurance is to recommend it via an advice document and advisers are government by a whole bunch of policies around BID/FASEA ETHICS etc so for the Labor member to question value of the policy and conflicts with commissions it doesn’t even come into play as first and foremost we are governed by the quality of advice we provide. Drop kicks honestly.. no idea on how they answer this correctly, commissions are conflicted like in mortgage broking but that is still being paid, as long as the professional services provider delivers it using their license and under BID… it’s a catch all regardless of payment terms – struth!
Insurance Commissions are a NON ongoing fee, because the premium is annual. In otherwords, if the annual insurance premium is not renewed, there is no ongoing fee (like a super fund with a fund value). And in the first two years, potentially there can be a full write back. So there is nothing here to review. Period.
Thank you!
OK, so this would be the time that TAL, ZURICH, MLC, AMP, AIA et al should get involved to champion the cause of advisers and the broader industry. God knows they did NOT do this when 2 year clawbacks, lower commissions and all the other FOFA/LIF changes steamrolled us. Are you listening THIS time life companies? – last chance!
It would be good Squeaky_1,but all the other insurance companies are feverishly trying to work out how they can survive and hopefully grow at their competitors expense, to worry about insurance advisers.
The greedy mongrels couldn’t work together to bail out a sinking boat, let alone save this industry. Get out of the industry and save your sanity, if you’ve still got some. RIP insurance industry.
No because they orchestrated the whole ting so they could boast their profits when they could see that the industry was bleeding advisers. Wake up the insurance companies are NOT on the advisers side, they want a “Tied” agency force that sells their own product.
I agree Mark however they’ve shot themselves in the foot by doing this to advisers as we are the ONLY entities that can save the life industry. I wonder if the all-powerful life companies realise this about themselves. Short-sighted, self absorbed fools all of them. I truly believe OUT now is the only answer sadly and I’ve contemplated my navel FAR TOO MUCH on this to think I am any sort of wrong on this point. The top end of town will win this one . . . reprehensible and too sad for words. The clients will suffer, ultimately, more than anyone else. Client best interest? . . . pfffttt! . . . the companies couldn’t care less.
And the AIOFP want to support this mob that are hell bent on destroying our industry? The red tape will eventually, bit by bit be removed form our industry over the next 5 years but not if the ALP get into power.
Yes, they want to support this mob. Makes you wonder.
The Libs have shown no indication they’ll ever work with the industry. The pie in the sky wishing they’ll be reasonable has gone long enough. They’ve been far more damaging than Labor has been.
That seems to be the situation. Liberals, after treating this industry this way for so long, I have now learnt and will vote anyone but Labor/Greens and Liberal.
From my point of view, continuing to do the same thing election after election (Liberal Promises for Opt-in etc) and expecting a different result (that Liberal will actually help) is stupid. Why do it?
If you spent time actually studying how our Gov system works, you’d see that regardless of votes a major party gets in. SO what you’re really saying is that by defraying the support for LNP you’re increasing the chance for Labor (you know, the guys who are actively working towards our demise and destruction) to gain power. The only exception is if an independent in your region is an ex-planner or else highly sympathetic to our cause!
This Labor idiot needs to go and read the report on what happened in the UK when they stopped commissions on Life Insurance. After 3 years they realised there was a massive under-insurance problem because very few wanted to pay a fee on top of the insurance premiums to make sure their cover met their needs. There was a mass exodus of advisers providing risk advice it became unprofitable to do this, along with the potential risks.
Having realised they had this massive problem as more people were making claims for government benefits, they reintroduced commissions at a higher rate than before they were removed to encourage advisers back into this area.
This Mulino shows he has as much knowledge in this are as that other Labor MP Steven Jones as they are simply espousing the message being given to them by the Industry Super Funds as another attempt to kill off advisers.
Where can you find this report?
In the UK.
Don Trapnell saying that UK commissions were never cancelled. They seriously considered it and made big changes but didn’t actually cancel it: https://www.ifa.com.au/risk/24120-life-insurance-the-view-from-london
What do you expect from a career academic and politician !
My goodness, it’s so disheartening that after all this time providing great service, value and quality products to consumers as well as complying with outrageous compliance obligations that we still have to put up with public figures spewing out popular uninformed rhetoric. The future isn’t looking any brighter.
Notice he doesn’t refer to the conflict rem that union super received when they negotiated higher comm on the group life for members to go up in premium with lower benefit levels?
If you’re an idiot planner ‘voting against the LNP next election’ then the above won’t be a Labor dog barking in the night, but they will simply push towards making law immediately.
Financial Adviser cannot accept conflicted remuneration….But its fine for:
Mortgage Brokers to have ongoing commission,
it’s ok for Industry Funds to charge a small percentage fee to everyone for advice they may receive,
It’s ok for the guy who sold me my phone plan to get paid commissions
Its ok for my general business insurances policy to have commission paid on it
Its ok for my car insurance to include commission
heck, its ok for politicians to accept donations from people that support them
Are financial advisers being discriminated against?
Discrimination happens when a person, or a group of people, is treated less favourably than another person or group because of their background or certain personal characteristics. This is known as ‘direct discrimination’.
It is also discrimination when an unreasonable rule or policy applies to everyone but has the effect of disadvantaging some people because of a personal characteristic they share. This is known as ‘indirect discrimination’.
https://humanrights.gov.au/quick-guide/12030
You decide
You forgot about the two professions that we are constantly told to emulate:
its ok for the medical profession to be paid from Medicare (the best commission, third party payment ever)
its ok for lawyers to take 30%+ from a TPD claim (or any other no win/no fee arrangement)
The lawyer argument is particularly good. Well done!
Seriously, we have policy makers/influencers who have spent their career at Universities and in roles funded by the public purse since then. In all probability have never sought advice, let alone understand the need for life insurance given they are most likely members of Government funded defined benefit schemes. And then they have the incredulity to make broad assertions that everyone should pay up front fees for life insurance. This Guy should get real- the people who need the coverage in most cases are the people who can least afford it – hence why the commission arrangement exists as a form of remuneration for Advisers who have a long term client perspective. Lets face it life insurance and estate planning advice combined with superannuation advice is one of the most complex and potentially litigious form of advice you could ever draft. These people have little understanding…
I agree with you completely, except you’re overstating the level of understanding they have….
too many stakeholders in these bs reviews – too many views and voices, most which don’t have a full appreciation or understanding of the critical considerations at stake here
Statement from Munro like some others have no idea and do not understand the life insurance industry today and how it was built.
The only thing worse than not foreseeing problmes caused by actions is to continue to not learn from these failures as it should have become bleeding obvious.
Sorry, what specific ‘highly problematic practices’ came out of the royal commission in regard to life insurance advice by licensed financial advisers? Life insurance advice barely registered in the royal commission. Direct life insurance sales featured heavily. I pity the MP’s trying to understand how all these facets fit together and work, unfortunately its difficult for them to comprehend along with everything else (ie other industries) they are making decisions on. It’s the responsibility of our advice advocate groups to educate the likes of Dr Mulino. He clearly doesnt understand the differences. Which is scary when he is making a decision on the future of the industry. It doesnt help that insurers (outside AIA) dont insure MP’s, how can MPs possibly understand the value when they are excluded from being insured.
So, what exactly are these “systemic problems”? Given all insurers pay commission at the same rates, and people taking out TOO MUCH insurance certainly isn’t an issue, exactly what problem is the retention of commission perpetuating?
If we are talking about conflicts let us focus on Superannuation and awards /enterprise agreements.
The linkage that forces workers to certain funds needs to cease immediately.
Furthermore if commissions are such an issue why is there not a move to have them removed from the sale of motor vehicles or even simple white goods?
Perhaps lets extend this to forcing GP’s to disclose the financial incentives they receive from referrals to pathology labs or prescriptions for certain products?
This is the usual political rubbish that requires a united front to oppose from the advice community.
Unfortunately we are plagued with fractured bodies and pathetic representatives to advocate our cause.
Exactly Royce. And how about mortgage broking. Why haven’t they come under scrutiny? They make a fortune from their commissions.
Hmmmmm….You haven’t written a loan lately, have you
They did come under scruitiny and their organisations worked together to quash the recommendations….our organisations have largely capitulated…
Because mortgage brokers don’t compete with industry super funds….
And because the Mortgage Broking Industry would immediately go belly up if commissions were abolished because NOBODY would pay $3K+ Fee for Service for a Mortgage Broker and would instead go direct to the understaffed, under-skilled banks who would need to re-employ all the belly-up Mortgage Brokers who possess all the knowledge and experience and thus returning all the market power back to the Big 4.
“we hope if the government can simplify regulation, it could open up forms of digital advice as well.” meaning…let us ditch the advisor role and go direct to consumer!
hope so!
yes make it easy, give the consumer choice to go digital and find a solution themselves. guess what? advisers would win hands down.
BRING IT !
Daniel please take a taxpayer funded study tour after COVID and see first hand the results overseas of eliminating commissions and the massive rewind. Smarter minds have already been down this path and worked out no commissions means those who should be insured the most are insured the least.
You don’t need yet another research paper or the like. The case study has already been run and it was a massive failure.
Agreed. One wonders whether Dr Mulino has a policy plan to increase social security funding to cover all the people who would be uninsured (and going straight to Centrelink upon accident or diagnosis) if they had to bear the full cost of advice?
No – they havent any such plan – in fact, anything in the past thirty years is irrelevant when it comes to Labour…sadly the Libs arent any better.
Here we go again….
Fantastic. Yet another politician who does not understand the industry, the product and it seems the massive underinsurance problem in this country.