New consumer research reveals tampering with life insurance commissions could mean consumers risk everything

Initial findings from Risking Everything – the Association of Financial Advisers (AFA)’s third tranche of research – reveal that many Australians would not seek life insurance advice if forced to pay for it via an upfront fee rather than via commissions. They also fear losing affordable access to advice if opt-in becomes a reality.
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The research, commissioned by the AFA; conducted by CoreData and sponsored by AIA Australia, surveyed corporate super and life insurance clients. AFA CEO Richard Klipin said the findings reveal that people who use a financial adviser for their life insurance needs are more likely to have appropriate cover; be confident they understand what type and how much life insurance they need and feel comfortable they have sufficient cover.  “Disturbingly however, many would not pay for it if commissions are abolished,” he said.

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Key findings revealed that:

• The majority of people who have used a corporate super adviser would not be likely to pay upfront fees for financial advice if it was not part of their corporate super fund offer (56.0%).
• A commission paid by the insurance provider is both the most common (40.0%) and preferred (32.6%) payment method of those who receive advice on their life insurance.
• Two in five of those who are not currently paying upfront fees for advice and didn’t list it as their preferred method would not be willing to do so, even if it was the only option (40.5%).
• This implies that some of the few people actually receiving life insurance advice in today’s environment would exit the market if forced to pay a fee-for-service.
• The major reason those with life insurance but without an adviser have not sought advice to manage their life insurance needs is an aversion to paying fees (44.0%).

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The findings also revealed some horrifying statistics around opt-in.

• Three in five members (61.4%) who have utilised the services of a corporate super adviser claim that the possibility of losing these services in an opt-in environment is of great concern to them compared to only 17.3% who indicate this is of no concern.
• Employers express even greater concern about the potential consequences of opt-in than members with some 78.5% indicating the legislation is of great concern.
• Employers say the removal of corporate super services under opt-in could reduce benefits for employees and put members at risk of making poor decisions around their super and finances.

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“Ultimately what these findings tell us is that the proposed FOFA reforms around the possible banning of commissions on risk products and opt-in will, if implemented, have a devastating effect on ordinary Australians,” Mr Klipin said. “Fewer would get advice and even fewer would have life insurance. Without insurance, families would be left unprotected. If a breadwinner dies or cannot work as a result of illness or injury, the family risks losing everything.”

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Mr Klipin said in light of the evidence, it’s time for the Government to stop grandstanding and start thinking about adviser remuneration from a family-in-the-street perspective.

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“Advisers, who do a great deal of good work for their clients – not only in assessing their needs but also handholding them when life deals them devastating blows – need to be paid.  They have no problem charging fees for their services; it’s every day Australians, trying to balance ever-tightening household budgets that have a problem paying them.”

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AIA Australia’s Head of Adviser Services, Pina Sciarrone, said financial advisers play a vital role in narrowing the under-insurance gap. “Advisers help consumers understand what type of insurance they need, how much they need and the best way to purchase it – either inside or outside their super funds,” she said. “If people can’t afford to access that advice, they are likely to have seriously inadequate levels of cover or, worse still, no cover at all.”

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Mr Klipin urged Minister for Financial Services and Superannuation, Bill Shorten to take a long hard look at the figures around the financial impact of underinsurance on families, communities and the Australian economy before banning commissions.
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“Families impacted by the early death, disablement or illness of a breadwinner often can’t service their own debt,” Mr Klipin argued. “They not only risk losing their homes, but ultimately place a burden on the public purse.  It’s time Mr Shorten did the maths.”
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Underinsurance Crisis – Some Statistics from the Research

• Around half of respondents have life insurance (52.0%).
• Two in five (43.5%) say they are not likely to ever take out insurance.
• The average person with life insurance is underinsured. Across all wealth segments, the average self-reported level of cover is just 5x earnings – half of what is recommended by Rice Warner.

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