Reviewer explains why life insurance commissions should stay

Quality of Advice reviewer Michelle Levy says ditching life insurance commissions would do more harm than good, and could lead to more advisers exiting the industry.

In an interview with insuranceNEWS.com.au, Ms Levy says that in a “perfect world”, commissions would not exist, but in reality she cannot see a reason to ban them.

She says royal commissioner Kenneth Hayne started with a presumption that life commissions should go, unless there was good reason to keep them.

But Ms Levy says there is a good reason. She says poor advice is still given, but it isn’t commissions that causes this to happen.

“I think I’ve been persuaded that there is, in fact, a good reason to keep [life insurance commissions],” she said.

“There’s been a file review undertaken by ASIC of advice files. They have concluded that advice has improved. It’s not amazing. It’s not fantastic. And there’s still too many people giving poor advice. But it’s got better.

“There’s also evidence that the advice given for life insurance and superannuation, where conflicted remuneration is banned, is kind of on par.

“So, it suggests to me that, to the extent there is poor advice, it’s not in fact being contributed to by commission.”

She says there is also evidence that not enough people have sufficient life insurance, and that group life within super is not the answer, as there are concerns about the erosion of super balances.

“There is real evidence that people won’t pay [a fee] for advice about life insurance.

“I again worried that I would do more harm than good in recommending that life insurance commissions be removed.

“The industry doesn’t have a lot of advisers, and they are under a lot of pressure.

“And so I think, to do something that would put at risk the few that we have, would also be counterproductive.”

See Analysis.