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Insurer disputes up-front risk fee preference

The head of a retail life insurer has disputed recent research around consumers preferring to pay for risk advice through up-front fees, insisting commissions should be maintained to offer more choice to lower income clients.

Appearing before the House of Representatives standing committee on economics on Tuesday, ClearView managing director Simon Swanson was questioned by MP Anne Aly around recent MetLife research that asserted seven out of 10 consumers would prefer to purchase advised life insurance through an up-front fee with a lower commission.

Mr Swanson said the insurer was in favour of maintaining insurance commissions at the current levels mandated by the LIF, as preferences around payment structure “depends on the relationship between the adviser and the customer, and the circumstances of the customer”.

“With respect to charging a fee for advice and implementing advice, most insurance companies allow you to dial down the premium by the amount of commission, that is about 27 per cent of the premium,” he said.

“The fee for advice for life insurance is between $3,000 and $4,000, so often the customer doesn’t have the capital to be able to fund that up front payment and therefore is comfortable to take the commission inside the premium, so it's up to the circumstances of the individual.”

Mr Swanson said as the financial planning profession evolved to place increasing importance on holistic advice, it was important that consumers not miss out on insurance advice as part of this due to affordability issues.

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“The cost of capital to an insurance company is less than the cost of capital to the individual, that’s what it comes down to,” he said.

“Some customers are happy to pay an upfront fee, but our view is we want planners to do holistic advice and appropriately put in life insurance and super. That’s our view of how financial planning is going to evolve in the next five to 10 years due to the removal of rebates, grandfathered remuneration, improving standards through FASEA and so on.”

Mr Swanson said that in ClearView’s opinion, once risk commissions had reached the levels mandated through the LIF and grandfathered commissions had been removed, “the appropriate balance will have been achieved” between affordability and improved consumer outcomes.

He also called for the government to consider making financial advice tax deductible, saying the time was right for policymakers to implement the move given the rising cost of advice and the growing complexity of the tax and social security system, as well as Australia’s continuing underinsurance problem.

Insurer disputes up-front risk fee preference
Simon Swanson
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