Editorial

Managing Editor – Peter Sobels

Commissions and democracy

My message to politicians, regulators and other stakeholders about the future of life insurance commissions is a simple one: don’t ban it unless you have a better solution.

I can’t help drawing a parallel between the nature of life insurance commissions and one of Winston Churchill’s famous quotes about the nature of democracy. As the Leader of the Opposition in 1947, he said in a speech in the House of Commons:

“No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government except all those other forms that have been tried from time to time…”

In Australia, no one pretends that commission, as a form of remuneration for life insurance advice, is perfect or all-wise. There can certainly exist conflicts of interest, and it is more than ok to advocate an end to all conflicted remuneration for financial advisers, including risk commissions. But unless there is a better way to appropriately remunerate advisers for delivering life insurance solutions, without making a bad underinsurance situation much worse, then leave it alone.

This doesn’t mean the existing system can’t be improved. For example, there is a current debate, given momentum by the recent release of ASIC’s Review of Retail Life Insurance Advice, about whether there should be greater controls applied to adviser remuneration for replacement policy business.

the industry needs to ensure that remuneration and incentive structures do not undermine good quality, compliant advice

Ok, let’s have that debate. Let’s work together to create the best possible outcome that both serves the best interests of the consumer and properly remunerates advisers for their dedicated work with their clients.

In reporting on ASIC’s Retail Life Insurance Advice Review, we have pointed out that while ASIC is not recommending commissions be prohibited, its message to the industry is unequivocal: the industry needs to ensure that remuneration and incentive structures do not undermine good quality, compliant advice.

ASIC makes the point that there is no relationship between the cost or complexity of life insurance advice and the remuneration received by the adviser. This is because the value of the commission to the adviser directly relates to the dollar value of the business to the insurer. The regulator has also said that the present risk commission model fails the consumer because it doesn’t incentivise advisers to recommend a client retains or reduces their existing cover.

Again, let’s have this debate, with a view to improving the current system for all concerned. But as the industry navigates this course, it should keep in mind Mr Churchill’s point about alternatives to democracy, and first ask itself whether a better remuneration model for retail life insurance advice exists.

Peter Sobels

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