‘LIF has caused problems’: Why ASIC could opt to raise risk commissions

Lifespan Financial Planning chief executive Eugene Ardino told ifa that with increased recognition in Canberra that the LIF rules had decimated the life insurance industry, it was doubtful the review would come up in favour of reducing or removing risk commissions.

“The government recognises that LIF has caused problems – we’ve seen insurance premiums go through the roof, and OK there are other factors, but insurance is a volume game, so [new business] volume is a massive factor,” Mr Ardino said. 

“We will have seen the underinsurance gap widen, a mass exodus of insurance specialists and more direct insurance products being sold on the market, so I don’t think the government will go down that path.”

The comments come as the latest figures from research house DEXX&R revealed that risk new business sales are at their lowest levels in five years.

Mr Ardino said the quality of advice files used in the review would also be a factor, with the AFA having recently revealed the regulator would use a random sample of files from 2017 and 2020 to provide a comparison on the impact of LIF.

“The quality of advice that’s been provided more recently is better – I don’t believe that LIF caused that, it’s more to do with the fact we’ve improved the standard of advice across the industry,” he said.

“But also the sample being used this time round is a random sample, whereas the sample used for the report done several years ago was based on advisers that had high lapse rates. If they’re going to find more incidence of poor advice I think most would agree that’s where you’ll find them, where there’s high lapse rates.”

Mr Ardino said he hoped “common sense would prevail” and the regulator and government would even consider “lifting the commission rate to a level that is more reasonable”, given that risk advice for middle-income retail investors was generally out of reach at current prices.

“I know some exceptional insurance writers who now hardly do insurance for new clients – they’ll service their existing ones but they’ll focus more on investments,” he said. 

“It’s just because underwriting is a lot harder, premiums have gone through the roof and commissions have been cut in half, so unless you’re doing big deals or dealing with clients that are sophisticated enough to pay a fee for service, it’s not commercially viable unless you’re doing other things for that client.”

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