MEDIA RELEASE: A number of consumer advocacy groups have called for the Quality of Advice Review to ban all remaining conflicts of interest in the advice industry, including life insurance commissions. However, FPA Chief Executive Officer Sarah Abood says banning commissions will leave more consumers chronically underinsured.
“By banning commissions, we’d effectively be removing consumers’ ability to choose how they wish to pay for their advice,” Abood said.
“Multiple research studies have shown 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.
“This is a problem not just for the individual but for our whole society. It would leave many Australians entirely dependent on the social security system in the event they became ill or suffered an accident and were unable to work, or where a family breadwinner passes away.”
The FPA cites 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.
The FPA said this number 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,” 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.”
The FPA supports all the proposals made in the Quality of Advice Review paper on conflicted remuneration, including the proposal to leave the Life Insurance Framework (LIF) model unchanged.
It also supports 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,” Abood said.
“This improvement has not been acknowledged by consumer groups. These groups have taken a position that it is impossible to deliver a quality service to consumers where any conflict exists, but the data shows this is not the case.
“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 an incentive to extend disputes.
“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.”
Abood said the FPA is keen to see the full dataset of the recent ASIC file review made available publicly, and for a further round of file reviews to be undertaken following the conclusion of the Financial Planner and Adviser Professional Standards transition.
“In that review, we would expect to see a continuation of the current strong trend of improvement in the quality of insurance advice that’s being provided to consumers.”
