Insurer MetLife Australia believes that consumers should have a choice of how to pay for life insurance advice; either fee-for-service or via commission. The removal of commissions on life insurance in Australia would be a global first, it says in its "2021 Value of Life Insurance Report".
MetLife notes that commissions on life insurance products have been the subject of much debate in Australia since 2009, when the Federal Parliamentary Joint Committee (PJC) on Corporations and Financial Services recommended they be banned.
Since then, there have been multiple reviews into the payment of commissions, including the Trowbridge report and ASIC’s Review of retail life insurance advice, which culminated in a decision to limit upfront commissions to 60% of the first year’s premium.
In 2019, the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommended that when ASIC reviews the Life Insurance Framework (LIF) regime in 2021, it should consider further reducing commissions to zero, unless there is clear evidence of underinsurance.
Consequences of abolishing commissions
MetLife notes that at present, only 27% of Australians receive advice. The insurer warns that reducing commissions will push up the direct cost of advice to consumers, reducing access to quality advice, with the following potential consequences:
-
Consumers will rely on off-the-shelf insurance products, which are not tailored to their financial and personal needs.
-
Consumers with lower economic means will lose access to advice.
-
Most consumers will not pay upfront for advice if the financial product is subject to an underwriting process that could lead to them being denied access to the product. This is different from investment products, which do not require approval to purchase the product.
-
Consumers who lodge claims will lose the support of their adviser during this difficult time (renewal commissions support this service from advisers).
-
Underinsurance rates in the Australian market may increase.
-
Many financial advisers’ businesses may become unsustainable, forcing them out of the industry and further reducing Australians’ access to advice.
Other countries’ experiences with regulatory approaches to commissions are often cited as representing object—lessons for Australia. Closer examination, however, shows that comparison with these examples could be misleading.
While different payment models apply around the world, no country that has a strong, voluntary, stand-alone life insurance system has banned commissions, the report adds.