AFA defends insurance commission carve-outs

Responding to questions posed by counsel assisting Rowena Orr at the conclusion of the royal commission’s financial advice hearings, the AFA said it would “strongly oppose any move to make further changes to the treatment of commissions” in relation to life insurance.

The submission noted that changes to commission arrangements made under LIF only commenced in January of this year and that not enough time has passed to determine the impact of these changes.

“To the extent that these changes were felt necessary by the Government, we certainly see no need to make further changes until there has been the opportunity to assess their effectiveness,” the submission said.

“We have not seen any recent evidence that would support a ban of commissions on insurance and would suggest that in the absence of this evidence and a comprehensive review of the consequences, that this should not be proposed.”

The AFA added that “international experience does not suggest that banning commissions on life insurance is a viable model” and that removing commission structures will make it more expensive for clients to seek advice on their life insurance.

“We believe that a banning of commissions on insurance would decimate the market for retail advised life insurance resulting in a significant decline in the levels of insurance that Australians have and also a decline in the number of financial advisers,” the submission said.

“This would lead to much greater stress being placed on the welfare system and Australian families.”