Up-front commissions on life policies and other risk products should be moved back to 100% in Australia – to incentivise advisers to continue to sell these policies, suggests Radar Results’ John Birt.
Writing in the firm’s newsletter, Birt says the Government wants more Australians covered by more life insurance and financial planning advice “…but they have done the opposite by providing less income to the advisers by having non-commercial claw-backs”.
He outlines how the maximum upfront commission payment was set at 60% and a renewal commission payment at 20% on life insurance policies and other risk insurance products.
Birt notes that before this prescribed setting, the up-front commission payments were 100% of the annual premium. There was also an introduction of claw-backs of the up-front commission payments if the life insurance, income protection or crisis care (trauma) policy was cancelled in the first or second year it was started.
“I’m still amazed as to why these limits were imposed in the first place,” he writes. “I have not seen any premium reductions by the insurance companies, who are now paying lower commissions.”
Birt adds that thousands of life agents and advisers have left the industry due to the lower commission levels, “…and many more will”.
“Back in the 80s, some life products paid 150% commission, and I know the consensus is that this leads to churning to make a commission, but it can be managed with the right conditions and monitoring,” he says, adding that this is now ”… illegal, heavily monitored, and totally against the Corporations Act.”