The removal of commissions from risk products could leave clients worse off, with the current focus on a one-size-fits-all fee model likely to lead to increased costs, a number of insurance executives have said.
CommInsure head of marketing Michael Browne said there was a danger if the insurance industry was made to take the same approach to commissions as a wealth accumulation business.
“We have a different approach with general insurance and a different approach again with consumer credit insurance and health insurance, but if anything life insurance is more like them, not more like accumulation products, with our distribution tending to be very different as well,” Browne said.
“To create this one-size-fits-all approach where all commissions should be disclosed really stuck insurance into the investment space, but that investment space was starting to cause issues and that is where most of the conflicts have been with things like shelf space fees and other issues with platforms.”
While abolishing or dialling down commissions would not be a major issue from a manufacturer’s perspective, an upfront fee approach to insurance would leave many clients second guessing the need for cover, Tower head of offer strategy Brett Yardley said.
“We already have products where you can dial down your remuneration to zero. It’s basically just who that funding goes to and it’s fairly easy to set up from a mechanical perspective,” Yardley said.
“The bigger issue is customers will then question whether they want to be paying that much upfront for a risk product or risk product advice. A lot of them, rightly or wrongly, will decide that it isn’t something they want to spend their money on, so in the end we would just end up harming customers.”
ING Australia head of insurance sales Kevin Goss said another concern for the industry if commissions were abolished was what effect it would have on people starting out in the industry.
“That is the other part that we don’t generally tend to think about. The idea of someone starting out and selling life insurance for a living will be pretty hard, particularly the first day on the job,” Goss said.
