Standardised commissions canvassed

The possibility of standardised commissions has emerged as an option as major insurers have urged the Federal Government to act cautiously and consult widely on the Cooper Review’s proposed ban on insurance commissions within superannuation.

AIA Australia chief executive Damien Green said the issue required caution, but he urged advisers to remember that the Ripoll Inquiry specifically exempted insurance products from the commission ban.

“I think it is important that the Cooper Review and the Ripoll Inquiry are looked at separately,” he said. “I think there needs to be calmness and there needs to be further engagement.”

Tower Australia managing director Jim Minto disagreed.

“We believe the commissions issue identified around the Ripoll Review announcement is directly linked to the same issue raised in the Cooper Review,” he said. “We are very concerned about the potential impact of any sudden changes in commission models when they do work well for Australians in delivering life insurance, and they are efficient.”

Minto noted that several market analysts had taken the view that the removal of commissions on life insurance in superannuation could make the issue of underinsurance worse.

Asteron’s executive general manager, Jordan Hawke, said he was against the ban because he felt it would challenge whether people got appropriate advice. He believed that most people would rather have insurance advice paid for via the product manufacturer than through a separate fee.

Green said he was not specifically against Cooper’s recommendation.

“I think in general the Cooper recommendations are very supportive of group risk,” he said. “But just to ensure that there’s no incongruity, I think it’s critically important that there is some clarification on the recommendation around commissions to ensure that the legitimate costs of administering those benefits incurred by all super funds can be recovered as they are currently.”

He said policy makers were well aware of the underinsurance problem.

“People are paying premiums for policies — they’re not investing lifetime savings. So it’s an entirely different equation and I think there’s a broad understanding of that,” Green said.

However, Hawke said advisers were justifiably worried that their concerns would not be taken into consideration. Referring to the Future of Financial Advice reforms, he said: “They haven’t said that risk commissions will not be looked at — they just said that at the moment [they] won’t be considered in this reform.”

Hawke and Green conceded that there was room for improvement.

“At the end of the day, manufacturers are paying the commissions and we can certainly all do better,” Green said.

Hawke supported standardised commission levels and said insurers could engage in the competitive debate without having commission rates as their point of difference. Hawke and Green agreed that policy churning needed to be addressed — something they believed could be down to high financial incentives for advisers to rewrite business from one manufacturer to another.

To hear adviser and AFA director Marc Bineham's views on standardised insurance commissions, see this week's edition of 4minutes.