In 2018, the Life Insurance Framework (LIF) was introduced, capping new business commissions for risk advisers at 66 per cent and trail commissions at 22 per cent on the grounds of consumer protection; however, this caused many advisers to stop providing risk advice on the basis that it was no longer profitable to do so.
There has since been an ongoing debate about whether this was the right decision, with some arguing that it disincentivised those who would churn out new life policies for the commissions while others countered that it has led to an under-insurance epidemic in Australia.
As it stands, Adviser Ratings figures from last year found that just 480 advisers were responsible for writing half of the new business during 2023, citing the LIF as the primary factor driving advisers away from the risk space.
Reflecting on his career as a risk adviser, spanning more than four decades, and the current state of the financial advice industry, Halstead Financial Services owner and risk advice specialist Alex Braun told ifa that one of the key things that needs to be addressed in the profession is the commission rate for risk advisers.
“I would like to see commissions on life insurance advice increased,” Braun said.
In particular, Braun suggested that changes to the responsibility period for risk advisers have created an “unfair” situation for advisers.
“We had a one-year responsibility period. So, if you bought a life insurance product and the adviser was paid a commission, and you stopped paying your premiums within a year, the life insurance adviser would have to refund his commission to the life office,” he said.
“These days, that guarantee period is two years. So, if I put you into a life insurance contract, and I get X amount of money for my trouble in advising you, and then within three years, you went to or marry a rich guy and you say, ‘Look, I don’t need this anymore’, then I have worked for nothing. This is unfair.”
This extended period becomes particularly problematic for risk advisers as the ongoing cost-of-living pressures lead some Australians to ditch their life insurance policies due to an inability to afford it.
As the next federal election grows ever nearer, eyes have turned to the major parties to see if and what they will do to address such concerns.
Speaking at an AIOFP dinner in Canberra late last year, shadow financial services minister Luke Howarth declared that it is “time to look at the Life Insurance Framework commission caps”, stating that they have made it “unviable” for advisers to sell life insurance to some people.
While the ongoing commission rate of 20 per cent is “about right”, according to Howarth, he suggested that steps would be taken to address the upfront commission rate if the Coalition were successful in the upcoming election.
“There needs to be enough remuneration for the work done, but we also don’t want to encourage policy churning,” Howarth said at the time.
“We would need to do some consultation, talk to the life insurers and the advisers in this space to get it right. We don’t want to make changes that aren’t going to have an impact. There should be transparency, and consumers have choice about how they want to pay, whether that’s a fee or a commission.”
In another show of support from the Coalition, shadow treasurer Angus Taylor said that, although he would not commit to rolling regulation back to pre-LIF conditions, there does need to be a reassessment of the current framework as there is “no doubt” that the lower commission levels have contributed heavily to the under-insurance issue.
“We have to get that fixed. Now, what that looks like, I think, is the really important question. Have we got the commission framework wrong? I think that’s a good question,” the shadow treasurer said in January.
“I’m not going to say going back to the old position is necessarily the right answer. What I am going to say is that the position we were in back then meant that the products were getting out there to the people who needed them, and that’s not happening at the moment.”
The government’s price fixing of life insurance commissions was never about consumer protection—it was a move orchestrated by insurers under the false pretense of stopping “churn.” In reality, this intervention was a blatant attempt to cut costs and boost margins, with no regard for the actual working dynamics of risk advice. The result? Advisers have been driven out, underinsurance has surged, and the entire sector is now on its knees. The naïve expectation that direct sales would replace advisers has failed spectacularly, exposing the fundamental misunderstanding of how people engage with life insurance.
Instead of fostering competition and innovation, regulatory interference has shackled the industry. The cost and risk of providing advice have doubled, while revenue has been slashed, making risk advice financially unviable and unsustainable for many. Meanwhile, consumers have fewer options and less access to expert guidance, undermining the very protection life insurance is supposed to offer. Insurers benefited in the short term from government-enforced commission caps, but in the long run, they’ve only succeeded in gutting the adviser network that helped them distribute their products.
If insurers want to salvage what’s left, they need to take responsibility for the mess they created. CALI and the major insurers should be loudly demanding that the government step back and let competition return. Only a free and open market can restore a viable balance, where advisers are fairly compensated, consumers have real choice, and insurers compete on service rather than lobbying for regulatory protections. It’s time to end the self-inflicted damage and let the market correct itself.
Peter, we all know you are 100% spot-on. Unfortunately, the people who were complicit, still believe that commissions is a dirty word. How ironic, the unadvised now pay an even higher price (for not having insurance).
The insurance companies thought they did not need us. Now, we do not need you.
A crucial study titled “The influence of commission on product recommendations made by Insurance Agents” by Cupach and Carson (2002) probed into this aspect, aligning with Kurland’s findings (1995a & 1996a). Lawsuits against insurance agencies alleged product recommendations motivated by commissions. However, the research showed no direct link between commission levels and biased suggestions. Instead, agent sales pressure, oversight measures, and to a lesser degree, agent experience, were more influential. Hugh Fravelle’s study reiterated that advice quality depends on monitoring, not the compensation method.
Fravelle’s insights revealed that under fee models, well established product manufacturers wielded pricing power. In contrast, under commission structures, advisers held this advantage. The fee system separated product and advice, inadvertently increasing client costs. Historically, advice costs were balanced using commissions from all clients. With individual client pricing under the fee model, smaller clients become less viable. While insurance is pricier with commissions, clients see value in bundled advice and product. The commission model also benefits new entrants to the market. This model aids all clients, large and small, ensuring collective profitability. Moreover, the shift to fee-for-service might be exacerbating underinsurance.
as an elder statesman of the industry, he should know the responsibility period is 2 years, not 3.
Yes, I thought that odd too.
It is indeed too late, sadly. The older risk specialists, the ones actually interested and passionate about risk advice, have all left the building due to the idiot regulations around higher education that wanted to see them all study and qualify at AQF8 level full financial planners. 90%+ of those older ones left. THEN the pathetic politicians changed the rules to make it easier for them to stay – AFTER they’d left! Ask me how I know! Go figure. Net effect: nobody left to mentor newbies and pay them through their apprenticeship. Oh and remember the commissions were cut so even if the oldies were there to mentor them there was not enough money in the equation to pay everyone.
Incidentally, even IF upfronts increase back to 80% or 100% it will be too late. Dedicated risk writers are no more and the ‘investment planners’ or ‘full financial planners, well, there aren’t many of them passionate about risk or truly understand it OR who can properly sell that is is even a good idea. No meaningful support from that quarter then . . .
Read all the above again, put your hand on heart and tell me the risk advice industry will be here come the end of 2026. Go ahead . . .
Can someone please contact Bert van Manen and have him give Mr Howarth the news he extracted from ASIC at a PJC committee a few years back . ASIC admitted under questioning at that committee that it had no proof of the alleged volume of what they called churning, which formed the basis of ASIC Report 413
The claim of systemic churning was always a great myth. Yes, there were few advisersIn vertically integrated businesses, particularly those linked to accountants, who like to review cases every year for “value”. These folks attempted to replace contracts every year.
Like every profession and occupation in our country, there is always a small percentage, less than 1%, of participants in that industry who don’t do the right thing. No law can prevent that.
Even if advisers are motivated to re-engage in churning, the compliance workload now involved(as distinct from a decade ago) in selling a million-dollar life policy would kill off any systemic approach to turning over policies every year, or even every two years.
LIF has destroyed this industry.The perpetrators of LIF, the big four banks, have, we say, come into our industry, raped and pillaged, and somehow been allowed by government and regulator to ride off into the sunset without paying any penalty.
The direct consequences of LIF, aided and abetted by stupidities such as the overreach of FASEA, is that our life insurers have lost 60% of the pre-LIF new business and have to had to resort to duration based pricing and gouging of long-standing policyholders.G that’s in the interests of policyholders
The banks have gone: sold their life businesses. And like Daryl Dixon, then laughing all the way to the bank.
Frankly I don’t believe Mr Howarth will do what has to be done. When he gets in the job he will find the same inbuilt resistance in Treasury and ASIC to paying an appropriate level of commission for the sale of life insurance.
Well stated Oldie, spot on as usual.
Angus, until you can commit to rolling back the unworkable and ridiculous changes brought about by LIF, then after the empty promises made by Jones, you are nothing but another empty promise.
The Financial Advisers changed allegiance because Liberal treated them with such disdain, such disrespect and such discrimination, they had no where to go.
If you are fortunate enough to win the next election, you must restore the relationship that once was way before the Morrison, Abbott & Turnbull era.
They did nothing but wreak havoc and destruction on Financial Advisers and destroyed the relationships with lifelong Liberal voters.
The ball is in your court and you had better make it a good shot.
Reducing the upfront commission was meant to stop “churn”, which was something insurers could quite easily have stopped themselves – they knew thew main culprits but enjoyed the new business too much. We were also told at the time that policy premiums would naturally reduce with the reduced commissions and therefore premiums would be more affordable for the consumer, however the insurers did the opposite and increased premiums (many times since then). I’m all for year 1 comms going back up to 80% (or more) but can’t help but think the insurers will bleat about losses and premiums will skyrocket
It’s going to cost me to place insurance cover for a new client (young dentist). I’m hoping I will break even in about three years’ time.
Thankfully, I can afford to take this risk (no pun intended).
Why would anyone need Life Insurance?
We have NDIS and free Medicare for all.
Love the satire…
Both of those are a little useless if you’re no longer breathing…
Not sure if this is sarcasm or utter stupidity
And GoFundMe.
Alex is one of the industry legends, a true gentleman and risk advice statesman, so if he says, be paying attention people in Canberra as he knows how things must be done.
Good luck….. Bad policy + greedy insurance companies thinking planners would take it and keep selling their product. I cannot help but think it’s all to late…