‘Highly problematic’: Labor MP raises doubts on risk commissions

At a hearing of the House economics committee on Friday, life insurers ClearView and TAL faced questions from Labor MP Daniel Mulino around how insurers had progressed from the “highly problematic practices” identified in the royal commission and whether there was a justification to retain risk commissions beyond the government’s 2022 advice review.

“I understand the notion that choice [of payment options] makes sense, but there were some systemic problems in the past,” Dr Mulino said.

“How do you feel that it’s possible for consumers to get value for money and have comprehension of the way they’re paying for products where we have commissions in play rather than upfront fees?”

“With respect to commissions it’s an interesting discussion – in some circumstances people pay for the advice directly, and that’s why we are encouraging government to make it deductible,” ClearView managing director Simon Swanson said.

“When you get to people in the 25-30 age group who are taking on significant mortgages, they’ve got to pay a lot for the house, stamp duty and then cost of the advice which is $3-4,000 every time.

“What the industry has done, we have a fixed commission rate so it’s even across everyone – all that is is the insurance company funding the advice fee, it should not influence the quality of advice.

“What we’ve tried to do is keep it simple [so that] people can afford the advice and they can make the decision to have part of it funded through commissions or part directly.”

However, Dr Mulino said it was “unclear” what the justification was for leaving risk commission levels as they were.

“For me, issues around commissions raise real questions around incentives and comprehension by consumers around what they are paying – it’s unclear to me that those are being managed sufficiently coming out of the royal commission,” Dr Mulino said.

Mr Swanson said life insurance was “a complex product” and it was essential risk advice remained affordable, with deregulation also a key component of addressing problems with accessibility.

“It’s a complex product, you’ve got life insurance, TPD, trauma insurance and then income protection, a sickness and accident policy that also covers mental illness,” he said.

“There is a general-personal advice divide so as soon as you ask a customer ‘what sum insured would you like’, you’ve gone into personal advice and you then have to find out the person’s needs and do an SOA, which is between 30-50 pages.

“The complexity of insurance does require people to get advice... we hope if the government can simplify regulation, it could open up forms of digital advice as well.”