Levinthal argues ban on insurance commissions presents cash flow and risk concerns

A ban on commissions on compulsory insurance in super is perhaps a good thing, but an outright ban on all commissions would be a massive threat to solving the underinsurance problem, according to Clearview Retirement Solutions’ head of life insurance Clive Levinthal.

Levinthal, who recently moved over from CommInsure, said the insurance industry had been doing some good work in recent years to address the underinsurance problem. However, he said the problem could only be solved with the cooperation of all stakeholders, including the Government.

Levinthal said he supported no commissions for compulsory insurance in super because it is done “fluidly, efficiently and systemically”, adding that members had the cash upfront to fund the premiums and advice. However, he said in most other situations it was imperative that commissions remained the mechanism used to pay for the advice, as paying a separate fee for advice on top of the premium was the worst outcome for the customer, for various reasons.

Levinthal said it was not only a cash flow issue, but also a risk concern.

He said under a commission arrangement a lot of risk was taken on by the manufacturer or the adviser.

“If the customer finds a better deal shortly after buying the product, it is the adviser and manufacturer that lose out, not the customer,” he said.

However, he felt that under a fee-for-service arrangement, if a client bought an insurance product today and then a better product came onto the market 12 months later, the upfront charges would serve as a disincentive for them to change policies.

Levinthal added that outside of super there was no guarantee that the consumer would get the insurance they needed.

“People have to go through the underwriting process in most cases, so you may be the unlucky person who is not in good health and is unable to find cover with terms that are acceptable and affordable,” said Levinthal. “The question is: would you still have to pay the advice fee, whereas today you don’t?”

He agreed that if advisers were to waive that fee, it would present a risk to their business.

Levinthal agreed that standardised commission rates across the industry might be a good compromise, but stated that the industry already operated with fairly standardised commissions.

He said there was healthy discussion within the industry, but all stakeholders had to be involved to solve the underinsurance problem, including Government.

“We need help on stamp duties,” he said. “And consumers are still paying an extraordinary amount of tax on insurance policies. The rates are different from one state to another, which confuses everyone, and there are inconsistencies in the tax treatment between insurance inside super and outside super.”