MLC Life Insurance is the latest insurer to put its weight and support behind the perpetuation of life insurance commissions in Australia.
It released a statement in which it strongly argues the case for the continuation of life insurance commissions.
The insurer’s statement, penned by its Chief of Group and Retail Partners, Sean McCormack, focuses on issues surrounding the ongoing viability and sustainability of life insurance advice.
In a reference to the Banking Royal Commission’s recommendation 2.5 on the future of life insurance commissions, McCormack notes that it’s debatable whether underinsurance should be the anchor for the 2021 ASIC review (see: Royal Commission Flawed Rationale…?). “After all,”, says McCormack, “…the LIF reforms that took effect in 2018 were intended to improve the quality of advice by addressing the findings of ASIC Report 413 Review of Retail Life Insurance Advice. This would presumably be an appropriate and worthy focus of ASIC’s review,” he said.
While acknowledging from the outset that client interests have to come first, McCormack also states his and his company’s strong belief in quality, lifelong financial advice. While he says the insurer supports ASIC’s 2021 review of the impact of the Life Insurance Framework remuneration reforms, McCormack adds:
…reducing commissions to zero has the potential to make advised life insurance unsustainable
“…we fear that, without a robust alternative model, reducing commissions to zero has the potential to make advised life insurance unsustainable. Perversely, this could actually increase the risk of Australians relying on insurance arrangements that are not optimised for their circumstances. Moreover, because it is likely only those Australians who are prepared to pay some kind of fee that will receive life insurance advice, those with lesser economic means will be most affected.”
Emphasising the issue of the affordability of financial advice, McCormack noted that clients are served in some way by risk commissions because they offset the cost to access financial advice. He said that, like any professional service providers, advisers who provide value to clients deserve to be adequately compensated for their time, service and expertise.
In articulating research that breaks down all the component elements and their associated time, effort and cost involved in packaging a life insurance advice services, McCormack points out that this only relates to up-front advice: “Good advice doesn’t stop once a client gets cover,” he said, adding, “Often absent from the commissions debate is the important, ongoing support advisers provide to their clients. This work goes to the heart of what represents good advice.”
Good advice doesn’t stop once a client gets cover
He says advisers cannot provide their initial and ongoing services and support without a remuneration arrangement that will sustain a business, and argues this is what renewal commissions paid to advisers by insurers recognises.
In reaffirming the insurer’s concern about risk commissions ‘reducing to zero’, as speculated by Commissioner Hayne, McCormack says MLC Life Insurance is in favour of a robust system that gets good insurance solutions into clients’ hands, and allows advisers to make a reasonable and sustainable income: “Currently, commissions play a part in that model however, if we’re going to move away from them, then we need to be very clear about how the new system is going to work. It is not clear at the moment what that new system looks like or how it will work.”
McCormack says his company urges the Government to carefully consider the way in which this recommendation is implemented. “If there are to be changes to commissions, any alternative model has to be viable for both clients and advisers.”
MLC’s recommendation, says McCormack, is to put the client in control and offer choice:
“Where a client wants to have the cost of their upfront advice offset by commissions, and to keep commissions in place to ensure ongoing support from their adviser over the life of their policy, they should be able to do so. However, if clients are comfortable to pay a fee, product manufacturers should provide a reduction in premiums that reflects the lower cost to them when commissions are removed. This reduction should be both upfront and ongoing,” argues McCormack.
Click here to access the full statement released by MLC Life Insurance this week, in which McCormack concludes by noting:
“MLC Life Insurance believes that Australians are better off with access to good, ongoing financial advice, and we support a sustainable advice sector in which commissions currently play an important role.”