FPA rebuts calls for life commissions ban

The Financial Planning Association (FPA) has rejected calls from consumer advocacy groups to ban life insurance commissions, arguing that this would leave more consumers chronically underinsured.

In a statement on Tuesday, FPA chief executive officer Sarah Abood rebutted the calls made by a number of consumer groups including Choice and Super Consumers Australia, and argued that by banning commissions, “we’d effectively be removing consumers’ ability to choose how they wish to pay for their advice”.

Citing “multiple research studies”, Ms Abood argued that a high proportion of consumers would not purchase insurance at all if they were required to pay an upfront fee.

“So the result would be that far fewer Australians would have appropriate insurance protection in place,” Ms Abood said.

Labelling it a problem “not just for the individual but for our whole society”, Ms Abood said removing the life insurance commission would leave many Australians entirely dependent on the social security system.

Moreover, she cited NMG Consulting research showing that retail-advised new life insurance business volumes have more than halved, declining from $638 million in 2016, before the Life Insurance Framework (LIF) reforms commenced, to just $317 million in 2021.

This number, Ms Abood noted, is expected to fall further over the next few years driven, by several factors.

“Overall, the number of financial planners who provide life insurance advice has declined substantially in recent years, and this has meant that it has become much more difficult for Australians to access advice in this area,” Ms Abood said.

“LIF also substantially reduced the remuneration advisers can earn from individual policies, which has made it economically unviable to provide life insurance advice to younger Australians where the premiums are lower.

“As a result, advice is focusing increasingly on older Australians, increasing the risk of the overall insurance pool and ultimately driving up premiums for all.”

Ms Abood reiterated the FPA’s support for “all the proposals” made in the Quality of Advice Review paper on conflicted remuneration, including the proposal to leave the LIF model unchanged, and emphasised the group’s support for the continuation of the existing exemption on life insurance commissions under the LIF.

“We welcome the findings of the ASIC file review. They show significant improvement in the quality of life insurance advice provided over the past four years,” Ms Abood said.

She noted that “every profession has some level of conflict involved”.

“We echo the comments made recently by the AFA on this point: surgeons are potentially conflicted in performing surgery if other interventions are possible. Lawyers charging time-based fees are conflicted by having the incentive to extend disputes,” Ms Abood said.

“We expect these professionals to nevertheless act in the interests of their clients — despite the existence of the conflict. Financial planners, as professionals, do the same. And in fact, they are required by a legislated code to act in the best interests of their clients.”