FPA rejects flat and level commissions

While not responding directly to the Trowbridge Report – which was an initiative of the FSC and AFA – the FPA has revealed its stance on a number of points raised by the LIAWG in its response to the Murray Inquiry.

The submission urged the government to “not accept” FSI recommendation 24 which it claims would “only serve to inappropriately benefit” life insurers and push Australians away from seeking cover.

Recommendation number 24 of the FSI final report puts forward the idea of a flat commission model for the industry, although the report did not recommend a percentage level rather stating it “should be left” to the market industry to decide.

“The FPA believes that remuneration for insurance work should be compensated commensurate to when the work is undertaken in an open and transparent manner,” the submission said.

“Given that most of the work involved in putting insurance policies in place through a SOA and underwriting is in the establishment phase this would preclude support for a flat or level commission structure,” it said.

Along with dismissing the recommendations of a flat commission within risk advice, the FPA has also put forward five points which it says should be adopted to reform the life insurance sector.

Among the five points, the FPA says there should be a ban on conflicted remuneration such as volume-based payments, rebates, profit sharing and shelf space fees.

The FPA also said advisers should be “supported through better product design” that caters for different funding models that can be offered to clients.

Another point raised by the FPA is the opening of licensees’ approved product lists and the need for there to be no restrictions.

“Remove heavily restricted approved products list,” the submission said. “Life risk products should be competitive on the basis of their suitability to the client and financial planners should be supported in meeting their best interest duty.”

The final two points the FPA present are the need for consumer benefit and stronger enforcement.

“Life insurance companies should be required to pass on savings in the form of premium reductions and sustainable premium pricing structures across all channels including retail, group and direct,” the submission said.

“[Also] a system should be established where life insurance companies are required to provide a list of financial advisers that have replaced insurance policies to the regulator for review,” it said.