‘Time to look at LIF’: Howarth signals Coalition would consider commission caps

Speaking at an AIOFP dinner in Canberra on Tuesday night, shadow financial services minister Luke Howarth addressed the possibility of re-examining commission caps on life insurance, which were reduced to 60 per cent upfront and 20 per cent ongoing as part of the Life Insurance Framework (LIF).

According to Howarth, it is “time to look at the life insurance framework commission caps”.

“Clearly the 60 per cent upfront commission cap has made it unviable for advisers to sell life insurance to some people,” the shadow minister said.

“The upfront commission means it isn't worth doing the work involved. We have a situation where many Australians are now under insured, can't give advice on their life insurance, and the only clients worthwhile are wealthier and older, probably in my age bracket.

“The reality is, if you've got a young married couple with kids and a big mortgage, life insurance is probably important for them – accidents happen. Younger people, people starting a family, it's important.”

However, he acknowledged that there are “probably a few insurance specialists doing well”, adding that the ongoing commission rate of 20 per cent is “about right”.

“There needs to be enough remuneration for the work done, but we also don't want to encourage policy churning,” Howarth said.

“We would need to do some consultation, talk to the life insurers and the advisers in this space to get it right. We don't want to make changes that aren't going to have an impact. There should be transparency, and consumers have choice about how they want to pay, whether that's a fee or a commission.”

The comments signal a change in approach from the Coalition, having previously thrown their weight behind a full adoption of Michelle Levy’s final Quality of Advice Review (QAR) report.

“We support the Levy review in full, and we wouldn’t go back to the drawing board. I think we would just basically try to get the reforms that the industry needs right now, as quickly as possible, because time is of the essence,” Howarth said at an Financial Services Council (FSC) breakfast in July.

“The work’s been done. We understand what the industry is effectively saying, so it needs to be implemented as soon as possible. We wouldn’t be reinventing the wheel.”

However, Levy made it clear in her report that she does not believe there should be any change to the current commission and clawback rates.

“Nothing we have seen suggests that life insurance advice is of a poorer quality than advice on other topics and nothing we have seen suggests that financial advisers are recommending life insurance in circumstances where the client will not benefit from holding life insurance,” Levy said in the report.

Answering calls for an increase in commission, she opined that this would increase the cost to the life company and therefore would have the effect of increasing premiums.

“I do not think it would be desirable for commissions to increase,” she said.

On Tuesday night, Howarth said a Coalition government would be the only hope of seeing changes to commission levels, as the “Albanese government doesn't want to touch this”.

“[Financial Services Minister Stephen] Jones has made it really clear that it isn't even on his radar, and he's told industry to down tools and any policy development around commissions. Their priority is the super funds and group policies. This is not part of it,” the shadow minister said.

“Bill Shorten, good fellow, I was there for his outgoing speech the other day, but he tried to ban all commissions, so it's hard to see a Labor government making any changes to these commission caps.”