Media release: Life insurance report lacks imagination in failing to look beyond commission based sales

The life insurance industry’s initial response to a damning report which revealed 37 per cent of all life insurance advice provided by Australia’s financial services licensees failed to comply with the law[1] appears unlikely to bring about sufficient change in how the industry does business.

ASIC Report 413 suggested that the industry’s heavy reliance on upfront commissions[2] can encourage life insurance brokers to sell products that boost their bottom line rather than products that are in the best interests of their clients. Despite the Life Insurance Advice Working Group’s interim report recommending the industry abandon ‘full’ upfront commissions, it has failed to consider a single remuneration model that isn’t commission based.

‘The industry’s response shows a lack of imagination, it hasn’t considered moving forward without commission-based sales. As long as there is a financial incentive for life insurance advisers to push certain products, there is little reason to think Australians will get advice that is prudent rather than profitable,’ said Gerard Brody, CEO of Consumer Action Law Centre.

In a joint response to the insurers’ report, Consumer Action Law Centre, Financial Rights Legal Centre, CHOICE, and Maurice Blackburn have argued life insurance brokers could still be paid for the work they do without relying on commissions.

‘Charging a fee for service is a much more transparent and ethical remuneration model.  It would mean consumers will know how much they’re paying, and will allow them to shop around for the broker with the lowest fees,’ said Mr Brody.

Under the models the insurers have proposed, there is little incentive for advisers to suggest clients stick with their current insurer, current level of cover, or consider life insurance cover associated with superannuation funds. This is because, under a commission-based remuneration model, this sort of advice is not remunerated.

Alexandra Kelly, Principal Solicitor at the Financial Rights Legal Centre, said the ASIC report into the life insurance industry should have been a wake-up call to insurers and advisers, but they seem to have slept through the alarm.

‘ASIC’s data shows that many consumers buying life insurance through an adviser are getting poor value for money – it’s there in black and white. It’s high time the industry made some radical changes but, if the interim report is any indication, this might be a way off,’ said Ms Kelly.

In their response to the life insurance industry’s interim report Consumer Action Law Centre, Financial Rights Legal Centre, CHOICE, and Maurice Blackburn also suggest that the industry:

  • Develop a code of practice in consultation with consumers and funded by the life insurance industry;
  • Develop a standard cover option to help simplify policies and the marketplace;
  • Improve disclosure where it would be effective; and
  • End stepped premiums which are being used to attract customers.

‘We recognise that life insurance advisers have a crucial role in addressing high levels of underinsurance in Australia. However, we don’t believe that conflicted sales models are appropriate in the modern marketplace,’ said Ms Kelly.


NOTE: The life insurance industry argues that commissions are necessary to tackle underinsurance, noting that they reduce the upfront cost of visiting an insurance broker and therefore encourage Australians to take out insurance.

But commissions have been around for decades and underinsurance remains a problem. Consumer Action and Financial Rights Legal Service fail to see why commissions should now be expected to fix the problem of under-insurance they were never  able to fix in the past.

Media contact: Dan Simpson, 0413 299 567.

[1] ASIC Report 413

[2] ASIC Report 413 found that 80 per cent of advice in ASIC’s sample was remunerated by upfront commissions, but 96 per cent of the poor advice was given by advisers paid under upfront commissions. Paragraph 158.

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