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The chief executives of two of Australia’s biggest life insurers have argued against banning life insurance commissions, saying it would result in fewer Australians taking up insurance.
Commissioner Kenneth Hayne recommended that commissions relating to life insurance, which are not currently exempt from the ban on conflicted remuneration, should be reduced and “ultimately be reduced to zero” on the back of an ASIC review in 2021.
Regardless of the string of scandals exposed at the Hayne royal commission, TAL’s Brett Clark and AIA’s Damien Mu are of the opinion that commissions on life insurance products promote competition and empower consumers.
Read more: What does the Royal Commission report mean for insurance?
At The Australian Financial Review Banking and Wealth Summit, Clark noted some “interesting” parallels with mortgage broker commissions, which Hayne also wants scrapped, but which both the Coalition and Labor have isolated as the one recommendation they will not implement.
“Part of the argument for mortgage brokers was around enhancing competition,” Clark said. “And I think financial advisers play a similar role. They enhance competition. Damien and I and all the other life insurers, we have to compete for their support. So, they provide choice to consumers, they provide competition, and the last thing we want to do is de-power competition and empower institutions.”
Clark said that while moving to a fee-for-service model would result in “a financial advice industry in a few years’ time that is a lot smaller, very well educated,” it would also arguably lead to “only providing financial advice for a small number of high net-worth individuals in the community.”
Meanwhile, AIA’s Mu said the reform would lead to fewer people taking out life insurance.
“The reality is if you talk to Australians, paying a fee for advice upfront is not something that the everyday Australian can afford to do, nor would they,” Mu told AFR. “It definitely is not a product that people get up and say, ‘I’m looking for more life insurance.’ And so, having advice and giving help to get the right products is really important.”
Read more: ASIC calls for ban on general insurance commissions – industry reacts
While Commissioner Hayne’s recommendation left it up to ASIC to decide on the matter, the corporate regulator has indicated that it would also favour a blanket ban on commissions.
