Speaking at an AIOFP dinner in Canberra on Tuesday night, shadow financial services minister Luke Howarth addressed the possibility of re-examining commission caps on life insurance, which were reduced to 60 per cent upfront and 20 per cent ongoing as part of the Life Insurance Framework (LIF).
According to Howarth, it is “time to look at the life insurance framework commission caps”.
“Clearly, the 60 per cent upfront commission cap has made it unviable for advisers to sell life insurance to some people,” the shadow minister said.
“The upfront commission means it isn’t worth doing the work involved. We have a situation where many Australians are now under-insured, can’t give advice on their life insurance, and the only clients worthwhile are wealthier and older, probably in my age bracket.
“The reality is, if you’ve got a young married couple with kids and a big mortgage, life insurance is probably important for them – accidents happen. Younger people, people starting a family, it’s important.”
However, he acknowledged that there are “probably a few insurance specialists doing well”, adding that the ongoing commission rate of 20 per cent is “about right”.
“There needs to be enough remuneration for the work done, but we also don’t want to encourage policy churning,” Howarth said.
“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.”
The comments signal a change in approach from the Coalition, having previously thrown their weight behind a full adoption of Michelle Levy’s final Quality of Advice Review (QAR) report.
“We support the Levy review in full, and we wouldn’t go back to the drawing board. I think we would just basically try to get the reforms that the industry needs right now, as quickly as possible, because time is of the essence,” Howarth said at a Financial Services Council breakfast in July.
“The work’s been done. We understand what the industry is effectively saying, so it needs to be implemented as soon as possible. We wouldn’t be reinventing the wheel.”
However, Levy made it clear in her report that she does not believe there should be any change to the current commission and clawback rates.
“Nothing we have seen suggests that life insurance advice is of a poorer quality than advice on other topics and nothing we have seen suggests that financial advisers are recommending life insurance in circumstances where the client will not benefit from holding life insurance,” Levy said in the report.
Answering calls for an increase in commission, she opined that this would increase the cost to the life company and therefore would have the effect of increasing premiums.
“I do not think it would be desirable for commissions to increase,” she said.
On Tuesday night, Howarth said a Coalition government would be the only hope of seeing changes to commission levels, as the “Albanese government doesn’t want to touch this”.
“[Financial Services Minister Stephen] Jones has made it really clear that it isn’t even on his radar, and he’s told industry to down tools and any policy development around commissions. Their priority is the super funds and group policies. This is not part of it,” the shadow minister said.
“Bill Shorten, good fellow, I was there for his outgoing speech the other day, but he tried to ban all commissions, so it’s hard to see a Labor government making any changes to these commission caps.”
IFA…would you please ask CALI their opinions on lifting the commission rates for Life Insurance advice & report those findings please.
meanwhile 25 year old’s don’t have any cover cause there isn’t anyone out there willing to do the SOA for $300 after the annual premium is only $750 p.a. – holistic advisors can say they charge upfront or ongoing but you aren’t a ‘risky’
Another politician making promises who would have thought? All the architects who helped introduce LIF who read this (you know who you are) have blood on their hands as they helped to kill the market (some unwittingly some not) which resulted in many under or non insured Australians…
The industry has been destroyed by politicians
I don’t think I quite believe what I’m hearing here.
That the consumer should have a choice of fee or commission…..this choice has been in place for years.
Secondly, if the Liberal’s want to redeem even a minuscule amount of support from Advisers in the upcoming election, instead of scurrying around the outside of a potential empty promise, they need to state right now that they will be implementing an upfront commission payment of a minimum of 100%, with a renewal commission rate of not less than 20% with a sliding scale, pro-rata, one year responsibility period.
Anything less than this stated promise is worth nothing.
The Liberal’s destroyed Advisers under Turnbull, Morrison, O’Dwyer and Frydenberg in a combination that did not give one concern for the incredible damage they imposed on small businesses across Australia.
They can redeem something, but it needs to be meaningful and it actually needs to be on Adviser’s terms this time,
Issue is you can say anything from Opposition like Stephen Jones did, when in Government things get difficult from legal briefings from ASIC and APRA. But just maybe he may be different rather than just being another disappointment to our very sick industry.
In all honesty, it’s hard to believe a word that comes out of Canberra these days. Over promise, under deliver. It has been the same theme for year after year in this industry. No surprises an election is around the corner. Until it’s actually implemented – it’s all smoke and mirrors.
We can live in hope!!
At least Howarth is acknowledging the problem—it’s a step forward, I suppose. However, what he *should* be saying is that the government needs to get out of the business of dictating distribution costs to insurers. Government intervention through frameworks like LIF is precisely why the life insurance sector has been decimated in the first place.
Levy’s comments about increasing costs to the life company also betray her belief in the need for government intervention. But it’s not Levy’s job—or anyone else’s in government—to “protect” insurance companies from competition. Yet that’s exactly what insurers sought to achieve with LIF: a quasi-cartel arrangement to shield themselves from each other. And look where that’s landed us.
Howarth, for his part, should avoid dragging up “churn” in the same breath as commission levels. That’s the exact sleight of hand insurers, the government, and so-called “consumer organisations” used to justify LIF in the first place. The truth is, no evidence of systemic churn was ever presented to justify halving commissions. Worse still, there are straightforward solutions to manage churn that don’t involve gutting adviser remuneration.
Take New Zealand, for example—they pay up to 200% upfront commissions, and their market is doing just fine. This shows that the issue isn’t commission levels; it’s heavy-handed regulation trying to “fix” problems that don’t exist, ultimately making life insurance advice unviable for many Australians who need it most.
Brilliant comment!
As the former Chief Economist of the Australian Chamber of Commerce and Industry, I fully endorse these remarks.
“seems about right” = plucked from his you-know-where
Finally someone in Canberra admits LIF got it wrong & commission needs to be increased. The real shame is he is in opposition not in Government (yet) so really nothing will change unless he gets into Government then convinces his colleagues this needs to be increased back to pre LIF levels…
Levy has got no idea what is happening in the real world ! … No adviser is going to write a $800-$1000 annual premium policy for a young couple when the commission received is just enough to cover the cost of producing an SOA… then have to worry if the policy gets cancelled in 2 years to lose your commission. I have been a Life adviser for 30+ years and have passed on doing new business for such clients for the past 4-5 years.
What would a lawyer know about how high to set commission caps (i.e. a price control) on what is essentially the cost of of distribution of the product? Lawyers attempting to provide recommendations on policy is a recipe for disaster, as we saw with the Hayne Royal Commission. I say that as the former Chief Economist of the Australian Chamber of Commerce and Industry, and someone who has a law degree. I’ve seen these people up close and they are genuinely clueless. They have no framework for thinking about policy, or analytical tool kit for considering the impact of impact of changes.
Yes.
The vast majority of Lawyers or Law firms that I worked with over 33 years in relation to their own personal Risk Insurance and the financial protection framework and agreement strategies for the partners required repetitive education, repetitive meetings followed by an inordinate length of time before any decisions were made and any progress achieved.
I am saying that the vast majority didn’t understand Life Insurance application well.
So, how on earth are we left with Lawyers dictating terms and providing opinion and recommendation on the level of remuneration that should be in place for Advisers?????
It is simply ridiculous.
No win no fee needs to become mandatory for lawyers. If you lose your case in court, you should not have to pay your lawyer anything. And if you win but then the other side subsequently appeals, you should be able to claw back whatever fees you have paid.
There also needs to be a quota with regards to how many lawyers can run for parliament. They are the reason why so much legislation is incomprehensible, biased and costly to comply with. Lawyers DO NOT own the justice system. .