60% likely to be ultimate default under LIF
The maximum allowable upfront commissions under the Life Insurance Framework (LIF) will likely become the default standard, according to actuarial consultancy, Rice Warner.
In an analysis of the changes announced to the LIF framework by Assistant Treasurer, Kelly O'Dwyer, Rice Warner noted there would be a phased reduction in upfront commission to no more than 80 per cent premiums from July next year, and then 70 per cent a year later, and 60 per cent from July 2018.
"We expect that the maximum commissions will become the standard default commission across the industry," the analysis said. "Many life agents will moan about the reduction in upfront commissions but smart dealer groups will realise that the higher renewal commissions, being recurrent income for the practice, will add value to their businesses."
The Rice Warner analysis also predicted that the National Australia Bank's (NAB) recent transaction with Nippon Life might be the start of a trend.
"It is likely that more banks will follow the lead of NAB and exit the manufacture of life insurance to release capital," it said. "Their customers will get better choice if more products are offered and the bank will take commission, which will be more stable income than profits on this business."
The analysis also noted that the Government was finally going to amend the Corporations Act to facilitate the rationalisation of legacy life and managed investment products — something that would lead to improved efficiency in the sector.
"In time, all these changes should lead to more competition and reduced premium rates, and if ASIC still finds problems in three years, there could be further measures to improve consumer outcomes," Rice Warner said.
Recommended for you
Policy and advocacy specialist Benjamin Marshan has left the Council of Australian Life Insurers after less than a year, having joined in March from the Financial Planning Association of Australia.
The declining volume of risk advisers meant KPMG has found a rising lapse rate for insurance policies arranged by independent financial advisers, particularly in the TPD and death cover space.
The Life Insurance Code of Practice has transferred from the Financial Services Council to the Council of Australian Life Insurers.
The firm has announced it will no longer be writing new life insurance policies in the retail advised and corporate group insurance channels, citing a declining market and risk adviser numbers.
