It is well known that Australians are hesitant to take out life insurance, resulting in a huge underinsurance problem when something tragic happens in a family.
Jenni Mack, Chairman for Choice says she wants the advice component of life insurance to be paid for through a fee. Thus the advice and product sale could be separated and charged accordingly.
Mack says when a consumer buys life insurance in Australia, there is an advice part of that transaction which is included in the sale by the life insurance advisers. She therefore suggests a commission could pay for the sale component of a life insurance policy, but argues this has done little for the slow take-up of life insurance.
“If commissions have no effect on the consumer, how can there still be the underinsurance problem after all these years? Commissions are not the answer to dealing with underinsurance, as in the worse cases we see up-front commissions of 130%,” commented Mack.
Choice’s Chairman also suggests ongoing fees are stopped, as she believes it provides little benefit to the consumer.
There is an argument for keeping ongoing fees, or trails, however.This is because they cover the life insurance adviser’s costs when their client needs to make an insurance claim. Mack counters that most clients make the claims themselves and often face a struggle to receive the payout from the life insurance policy. She shrugs off suggestions the consumer would be better off using an experienced adviser to deal with the life insurance claim.
“If you remove all the commissions from life insurance products, the costs will come down and consumers can then pay for the advice they actually use. If you take out the commissions, the price of insurance will fall,” comments Mack.
Mack does not accept that the cost of life policies is more influenced by an actuary pricing the risks of the person being insured.
The life insurance industry at large is still waiting on a decision by the Federal Government as to whether to exclude commissions from the pending Future of Financial Advice legislation.
Sourced and edited from insurancenews.com.
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