How Labor could be convinced on life commissions

Addressing the FSC Life Insurance Summit on Wednesday, shadow financial services minister Stephen Jones reiterated his remarks made at a number of recent industry functions around his bias towards removing commissions on risk advice unless a case could be made otherwise.

“We all know the royal commission set quite clearly a prima facie position on conflicted remuneration, a position that I find compelling,” Mr Jones said.

“Of course, we have found some areas where the prima facie position is not necessarily the most practical and best position.

“Mortgage brokers were able to make a case to government and the opposition that with the right sorts of protections surrounding that payment mechanism, consumers could get a good deal, we’d have more competition in the market and the remuneration structures appropriately adjusted could continue.

“Labor doesn’t intend to pre-empt the outcome of [the LIF] review but I want to say clearly to the industry that we are available to have a conversation about how we get this right.”

Responding to a question from the FSC’s Blake Briggs at the industry body’s Life Insurance Summit around what the “evidentiary threshold” would be for commissions to be retained in his mind, Mr Jones said the industry would first need to demonstrate its essential value to consumers.

“The first challenge is not around the remuneration, it’s around the value of the product that you’re selling in the first place. So the first challenge is being out there clearly articulating why consumers need the product that you’re selling, because unless you get over that hurdle, the remuneration of how you’re selling that product is inconsequential,” he said.

“When you’re able to prove the value, that it should be up there with car and house and health insurance, you’re then into the space of saying what’s the most efficient means of delivering that product to people and how can you do it in a way that protects consumers and ensures they pay the price of delivering it to them in the most efficient way.”

Mr Jones acknowledged that the removal of commissions could have further distorting impacts on an already volatile insurance market, saying the industry faced a challenge to balance appropriate incentives and sustainable cost structures.

“This whole cost issue is a bit like squeezing a balloon – you grab the balloon in the bit where commissions are and you squeeze it, and the air has flown to some other part of that balloon,” he said.

“The cost of distributing a product is going to be borne somewhere – the question is how you do that in the best way that removes all the unsatisfactory incentives, poor selling and churn practices. How do you remove the negative consequences?”