Just years after the banking royal commission found that there was a strong case for the abolition of insurance commissions for financial advisers, AMP has reignited an old debate by calling for the cap on life insurance commissions to be lifted.
Life insurance commissions are currently capped at 60 per cent on the initial premium and a maximum ongoing commission of 20 per cent as part of the Life Insurance Framework legislated in 2017.
The banking royal commission in 2019 recommended a review into conflicts of interest arising from life insurance risk products and whether the cap should be further reduced.
In fact, Kenneth Hayne’s recommendation said that “unless there is clear justification for retaining those commissions, the cap should ultimately be reduced to zero”.
But in its submission to the Quality of Advice Review (QAR), AMP has argued that “there is a strong case that the current commission caps should be retained and raised slightly”.
Citing the underinsurance gap, which the FSC recently concluded has increased, AMP said that commission should be raised to 80 per cent upfront and 20 per cent ongoing to “more appropriately reward financial advisers for their work” and to help “reverse the trend of the current exit of advisers providing occasional advice on life insurance”.
But AMP is not the only one recommending the increase. Namely in their own submission to QAR, The Adviser Association (TAA) said that the current upfront commission is “too low” to cover the costs of providing the insurance advice, which it said is “reflected in the number of our members who have ceased providing insurance advice”.
“Access to insurance advice for consumers has deteriorated with the exit of many risk specialists, mentioned above. We will leave it to others to argue what the upfront commission should be but our starting point is it should not be less than the current 60 per cent and preferably be 80 per cent or above,” the TAA said.
Just last year, speaking to ifa, Lifespan Financial Planning chief executive Eugene Ardino said that there is increasing recognition in Canberra that the LIF rules had in fact decimated the life insurance industry.
“The government recognises that LIF has caused problems – we’ve seen insurance premiums go through the roof, and OK there are other factors, but insurance is a volume game, so [new business] volume is a massive factor,” Mr Ardino said at the time.
“We will have seen the underinsurance gap widen, a mass exodus of insurance specialists and more direct insurance products being sold on the market.”
But on the other side of the debate is Industry Super Australia (ISA), which in its submission to QAR has demanded a complete abolition of commissions.
It had argued that current commissions remain “objectively high”.
“While commissions remain permissible for life insurance sold outside of super, there will always be a clear incentive for financial advisers to recommend retail life insurance products instead of life insurance within super,” ISA said.
“This is unacceptable and commissions should be banned to remove this conflict of interest,” it added.
Life insurance commissions are a key subject of the QAR led by independent reviewer Michelle Levy.
The QAR’s final report and recommendations are due to be handed to the government on 16 December.
Would trust anything AMP ever says. They have failed at everything.
I’m not saying AMP is wrong here however I find it ironic that they change their tune to suit their outcome. When they were a life insurer they never supported this but now they’re not an insurer they don’t have to pay commission however will receive it by clipping the ticket via the licensee ….surprise surprise now they’re all over it. Why don’t they come out and say they’ll only clip the ticket on 60/20 but if it increases to 89 they pass through to the adviser… that might get some interest….
AMP is actually correct here – anything but a 80/20 model will be the slow death of the retail advice Insurance industry
Newsflash: You can recommend retail products inside superannuation and still receive the same commission. ISA just pushing their own agenda because nobody is ever going to recommend the terrible products that superfunds offer, which will still be the case even if commissions were abolished.
Facts aren’t important
I have seen terrible examples of over-insurance as a result of commissions. Many advisers also do not recommend certain insurance products (ie inside super) that don’t pay a commission. I have saved some clients significant sums by recommending both retail and non-retail products where savings are available.
Financial advisers remain insurance salespersons until commissions are removed. It will also forced insurers to examine ways to engage directly with consumers by designing more simplified products that consumers can purchase direct.
The insurance distribution model (using complex products and features) via advisers is holding back more people being insured. The whole insurance ecosystem is holding back more people being insured, not size of commissions.
I have seen many clients over insured but it is usually because they don’t engage an adviser and CPI increase their cover. It’s got nothing to do with commission but more to do with client apathy and product issuer greed. Don’t forget that the product providers make more from over insurance than any adviser ever will. Also for every 1 client I see who is over insured I see 10 who are drastically under insured so lets try to address both problems.
Hope you go alright in front of AFCA when the client cannot claim on their substandard industry super cover.
AMP wants commissions to be raised on the same day they fully divest their financial liability in the sector. Funny about that huh! Now the advice division will benefit from this without them paying for it they are all for it. Hypocrisy of the highest order.
The escalating underinsurance situation in Australian will only see a larger burden moving to social benefits and living a life in abject poverty. I cannot see any win for Government in that.
Isn’t moving more people onto social benefits the Labor government’s usual mission statement?
Hundreds and hundreds of people are calling their super funds daily to do Financial Hardship withdrawals. Many of them doing it year after year, meaning they have no insurance cover and zero or low balances. Many more under Compassionate grounds rules. These people have no financial future. Why is this huge problem so under-recognised? Where are the statistics on this massive issue?
Notice the ISA never mentions abolishing commissions paid to super funds. Funny about that huh! Typical union strategy – just eliminate your competition.
AMP pushed for grand fathered commissions to be dropped and for LIF to come into play because as an insurer and superannuation provider at that point in time it knew doing so would make it more money. Now Resolution Life owns the insurance portion they want LIF to be scrapped. Nothing like a friend who you know will stab you in the back. The sooner this pitiful organisation is wound up the better for financial planning in this country.