Commissions should be raised to 80 per cent upfront and 20 per cent ongoing, AMP says, which would “more appropriately reward financial advisers for their work and will reverse the trend of the current exit of advisers providing occasional advice on life insurance which in turn will provide more access to life insurance advice and coverage”.
AMP’s director of advice Matt Lawler said in a statement that their submission provided a “practical, achievable and common-sense recommendations for change”.
“We believe a commission system in life insurance with good governance practices in place to protect consumers is workable, like in the mortgage broking industry,” he said.
Industry associations have also argued in their submissions to the review that life insurance commissions must stay.
A joint submission by a working group of 12 industry groups, which included the Financial Services Council, has argued that to ensure customer accessibility to risk advice, life insurance commissions must be retained.
The Association of Financial Advisers is calling for the commissions to be increased to 80 per cent. AFA chief executive Phil Anderson said consumers on the whole preferred to pay for their life insurance advice via commissions.
“We think that what’s important here is that consumers have access to a choice to pay by fee or the choice to pay by commission, and why we have suggested, as have others, that the current levels do not adequately renumerate advisers for all the cost involved in providing life insurance advice,” he said.
“If you remove commissions, then ultimately you would find a substantial decline in the amount of business that was processed by advisors.”
Chief executive of the Financial Planning Association of Australia, Sarah Abood, said the association supported the current commission cap settings, and if commission payments were reduced or abolished, it would have “further negative impact on the already significant under-insurance gap, leading to further adverse outcomes for consumers, and the social security and disability support systems”.
But Industry Super Australia and consumer group CHOICE are calling for all commissions should be banned. Patrick Veyret, head of policy and government relations at CHOICE, said commissions created an incentive for advisers to sell life insurance products that are not suitable for people’s needs.
“Conflicts arising from life insurance commissions lead to advisers recommending products that are of poor value or even harmful to their clients. Many of these conflicts are only permitted as a result of the legislative carve-outs that were strongly criticised in the final report of the Banking Royal Commission.”
In its submission, Industry Super Australia said that 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.
“This is unacceptable and commission should be banned to remove this conflict of interest.”
After repeatedly saying insurance advice commissions should be pulled back to zero, new financial services minister Stephen Jones said in recent comments he was open to changing his position after broad consultation with the industry.
The life insurance industry this week announced the formation of a new industry peak body, called The Council of Australian Life Insurers. It will be formally established in the new financial year, and is currently recruiting staff and chief executive.
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