Risk commissions should be left alone according to a new report out of Australia that says it is how consumers prefer to pay for life insurance advice.
ClearView Wealth’s 2022 Reform Agenda paper includes support for the life insurance commission model, a call to reduce advice paperwork, and increased measures to support stable and sustainable IP solutions.
The company’s report comes ahead of the financial services industry’s reform agenda as it prepares for a landmark regulatory review.
ClearView believes current life insurance commission rates in Australia are appropriate, capped at 60% upfront and 20% ongoing.
“Further changes are unnecessary and would have a detrimental impact on consumers, society and the life insurance industry…”
ClearView states the commission model is “…globally-accepted, economically rational and reflects how consumers prefer to pay for life insurance advice.”
The company says the model enables product manufacturers to cover the full or partial cost of life insurance advice.
“Without this subsidy, the majority of Australians would not be able to get adequate protection.”
The report adds that the potential unintended consequences of reducing or banning life insurance commissions include:
- Fewer people seeking professional advice and getting adequate cover
- Fewer advisers providing life insurance advice and those who do focusing on wealthier clients
- The financial cost of caring for the sick and injured falling back on families, society and the government
It notes that at claim time, life insurance provides funds to cover living expenses, medical bills and other costs, and enable households to focus on recovery.
…it’s crucial that regulatory settings facilitated easy access to financial advice and protection for consumers…
In a statement releasing ClearView’s top three priorities for industry reform, Managing Director Simon Swanson says it’s crucial that regulatory settings facilitated easy access to financial advice and protection for consumers, citing recent local and global events as adding further pressures on household budgets.
“The devastating impact of Covid-19 and a spate of natural disasters, including the recent floods in NSW and Queensland, have heightened awareness of the importance and value of professional advice,” he says.
“However, this trend is occurring at a time when the cost of operating an advice business is significantly increasing and, in turn, pushing advice fees higher. It is important that our regulatory system is fit for purpose and does not add unnecessary complexity.”
ClearView is also calling for a slimmed down Record of Advice to replace the Statement of Advice in situations where simple advice is being delivered, as well as the removal of the Safe Harbour steps, in line with the recommendation of the Financial Services Royal Commission.
The group’s reform agenda cited research that showed the cost of an SoA had risen more than 30% in the past four years.
Deferring Five-Year Contract Term for IP
The insurer also welcomed APRA’s decision to defer five-year contract terms for income protection (IP) products for at least another two years.
“It is crucial for life insurance solutions, including IP insurance, to be stable, sustainable and simpler for consumers,” Swanson says.
“ClearView welcomes the revised approach and we support APRA’s ongoing sustainability work. We recognise the importance of engaging with Treasury on issues about product rationalisation and quality of advice, and strongly advocate for engagement with financial adviser bodies, licensees and advisers.”
ClearView adds that it is “…committed to being a passionate advocate for public policy that underpins a strong, vibrant financial services industry” and will participate in the Quality of Advice Review, which submits its final report to government in December.
Click here to view ClearView’s Reform Agenda 2022.
