LIF commission cuts could see $15,000 hit to clients

The report, developed by insurtech platform Key Person Risk Management, estimates the cost of removing commissions – which have been flagged as a possibility in ASIC’s upcoming review of LIF remuneration settings – across each key touch point between consumers and risk advisers.

Titled Advised Life Insurance - Commission vs No Commission + Direct and Group Alternatives, the report estimates advisers will need to charge consumers between $3,000 and $5000 for an initial review and implementation of life insurance advice on a pure fee for service basis, and between $600 and $1,500 per year to review their ongoing insurance arrangements.

The research also suggests managing a claim on behalf of a consumer – which advisers will now need to attain additional authorisation for under new legislation introduced to parliament last month – will cost between $3,000 and $12,000 depending on the type of policy being claimed on.

Further, the research pointed to recent Rice Warner and Zurich research that just 8 per cent of consumers were willing to pay more than $1,000 for advice around life insurance, indicating that commission removal would make insurance advice unaffordable for the vast majority of consumers.

“Fee for service makes insurance advice unaffordable for 90-95 per cent of consumers and forces them to rely on inferior direct or group insurance products that generally cover less, cost more and deliver poorer claims outcomes; or even worse, consumers will not bother with insurance at all,” the report said.

“If unsustainable reforms continue, the life insurance sector will collapse, costing the government tens of billions of dollars in welfare, job losses and lost revenue, with these costs and losses compounding into hundreds of billions of dollars on Australia’s economy over the coming years.”

Key Person Risk Management manager and director Brett Wright said the research pointed to the importance of allowing consumers to pay for life insurance through commissions if they wish.

“The report is not trying to argue life insurance advice should be solely funded by commissions. I believe there is room for fee for service (FFS) and the consumers who want and/or can afford FFS, can access this option already," Mr Wright said.

"But FFS should not be the only option and it is essential consumers maintain their right to choose between the commission and FFS models, and decide which is best for them.”

A number of licensees and insurers have endorsed the report, with NEOS chief executive John de Zwart saying the data made the case for “appropriate and sustainable” commission levels heading into the ASIC review.

“In a professional advice industry, with strict regulatory and ethical standards, robust controls and oversight, the current commission model is both appropriate and sustainable,” Mr de Zwart said. 

“Combined with DDO and unfair contracts legislation, consumer best interest is well served and protected. Further changes to insurance commissions will only have negative consequences for middle Australians with no alternatives except government welfare or inadequate group cover.”

Helen Blackford, chief executive of IOOF dealer groups Lonsdale and Millennium3, said the report also pointed to the consequences and risks of any further move on life commissions.

“If an industry construct is further created through decreased commissions where restrictions are placed on a consumer’s ability to access and afford advice, the social and community impacts will result in broader under-insurance, financial hardship for Australians in their time of need, and as a result an increased demand on the welfare system,” Ms Blackford said.