FPA proposes upfront commission model

In a statement issued earlier this week, FPA said it has sent to its members a “life insurance blueprint” for consultation, which consists of 10 areas of reform for the risk industry, including a cap on upfront commissions.

“The [life insurance blueprint] is based on conversations with the board and members to date, and seeks to further collaborate with members on key matters,” FPA chief executive Mark Rantall said.

“The FPA wants sustainable change in the life risk sector through higher professional standards and by improving the public perception of the life risk advice service offering.

“The form of regulation proposed in the FSI final report would only serve to benefit life insurance providers and potentially push more Australians away from life insurance coverage due to the failure of addressing the real structural issues within the industry,” he said.

Of the 10 points in the 'blueprint', the FPA said “commissions need to be initially higher” to reflect the costs of advisers providing initial advice and implementing cover.

“A lower ongoing commission allows consumers to access review advice and encourages retention of policies – it is our view that the upfront work is often four times more than annual reviews,” the statement said.

“Therefore an upfront payment capped at four times the ongoing commission payment would be appropriate.”

The FPA also added that as part of an “effective commission mode” advisers should be partly responsible for the ongoing retention of the policy.

“[Therefore] we propose that commissions be able to be reversed for up to the first two years of a new policy,” the statement said.

The FPA also put to its members that in order to “promote fee-for-service” for insurance, life insurance companies should be required to develop options for advisers to “dial down” from product commission and “dial in a separately identified adviser fee”.

Among its proposals the FPA also argued that there should be a ban on "other forms of conflicted remuneration" which include volume-based payments, rebates, profit-sharing and shelf-space fees.