MetLife’s Value of Life Insurance Report, released earlier in July, looked at the monetary value consumers gained from insurance in the event of illness or injury compared to government benefits, as well as examining the consequences of removing risk commissions for Australian consumers.
The report noted that while the royal commission had recommended the removal of commissions “unless there is clear evidence of underinsurance”, the move was likely to further restrict access to advice in a market where only 27 per cent of Australians currently had a financial adviser.
It said that the “potential consequences” of a removal of risk commissions were that consumers would rely on “off-the-shelf insurance products” that were not tailored to their needs, and that clients with lower economic means would lose access to advice.
The report also said consumers were unlikely to pay for upfront advice for a product that was subject to an underwriting procedure that could see them rejected.
“This is different from investment products, which do not require approval to purchase the product,” the report noted.
In the report, the insurer noted that the UK’s abandonment of a commission ban on insurance after its 2013 Retail Distribution Review provided “an interesting case study” for the Australian market.
“The RDR reforms initially recommended a ban on all commissions, including for life insurance products,” the report said.
“In 2009 following industry consultation, the FSA said it did not believe advisers continuing to receive commission on insurance sales would be detrimental to consumers, and that remuneration structures were not a key cause of the problems it saw affecting consumers.”
The report noted the fact that while other jurisdictions had varied sales models for life insurance, they also often came with obligations to purchase the insurance at some point in a client’s financial lives, such as when taking on a mortgage.
“While different payment models apply around the world, no country that has a strong, voluntary, stand-alone life insurance system has banned commissions. The removal of commissions on life insurance in Australia would be a global first,” the report said.
“For all these reasons, MetLife firmly believes that consumers should have a choice of how to pay for life insurance advice; either fee-for-service or via commission.”
Maybe just ban commissions where Life insurance products have been sold under GENERAL ADVICE which doesnt give clients the protection of The Best Interests Duty which financial advisers are bound by when recommending products.
General Advice when delivered by a person at point of sale for both Investments and Insurance needs to be banned. GA should only be available in printed form as it is factual information.
It amazes me that ASIC allows a sales rep with 2 days training to “trick” a client into getting a vastly inferior policy without having to adhere to the Best Interests Duty, but if an adviser does the same he/she will have to book thrown at them by ASIC.
Financial Advisers will generally act in the best interests of their clients anyway as they have done some much training and spent so much time to become Advisers and see it as a career, where as a GA sales rep with a 2 day sales course will focus on the $ and if he/she gets banned then it doesnt matter to them as they can just go sell other products.
New Zealand has decided not to follow Australia to have commissions banned. In fact it has encouraged the system and business in the Life Insurance & other industries are doing very well, where both the Government and Oppossition are on the same page in relation to commissions being paid for the sale of products in the Financial Services espspecially Life Insurance.
It can’t be really be truely compared. Nz doesn’t have the complexity of the Australian market with the range of products available nor a tax and superannuation system like ours. Having said that commissions have been weaponised as an evil here which is not true and fundamental to the problem we face.
Labor are the only party who want to ban commissions so the Industry Super Fund will have a monopoly
Not wishing to pick on Metlife specifically, this report avoids the elephant in the room. Almost all life insurer CEOs are mumbling that commission should stay, but none have answered the question as to what is a viable commission rate for life risk advisers, who are finding that fees for life insurance advice is being rejected by mum and dad clients. We need the FSC and a few CEOs to say it quite bluntly to government – 80/20 is the only way life risk advice will survive.
We keep shooting at issues instead of looking at the foundations of this discussion:
1) What problem are we trying to fix by banning commissions?
2) Is that perceived issue really a problem?
3) What is the cost of this perceived issue?
4) Will changing the structure actually fix the problem?
5) What are the costs of making that change?
6) Will the new structure create new issues?
7) Will those new issues be better or worse than the original problem?
There are many reports and discussions on this issue but they all seem to kick off from a starting point that is half way through the decision making matrix – ie they assume commissions are bad and that consumers are worse off.
PROVE THAT and then come and tell me it needs to change.
So far every change we’ve been through has been one well intentioned disaster after another.
the whole Financial planning services is becoming un-viable to run. This will be interesting in the next 10Yrs when people have not been been advised and have debt issue & lack of funds etc . Oh well
[i]In the report, the insurer noted that the UK’s abandonment of a commission ban on insurance after its 2013 Retail Distribution Review provided “an interesting case study” for the Australian market.
“The RDR reforms initially recommended a ban on all commissions, including for life insurance products,” the report said.[/i]
The UK banned all commissions and life insurance distribution came to a screaming stop. That’s what happened. They aborted that policy within 3 months and bought back commissions. No further problems.
Did the Royal Commission not know about the UK experiment with banning commissions? Probably not, it seems like it was mostly for show anyway.
Let’s ban commissions for Real Estate Agents because they have a conflict of interest with the buyer/seller. No no no that could never happen. Please don’t mention that in polite company again