Life insurance industry reform needs to deal with commission-based selling
26 March 2015
Advisers who sell retail life insurance products should be subject to new rules that will overhaul commission based selling to consumers, says law firm Maurice Blackburn.
Commenting today on the release of the Trowbridge report on the Life Insurance industry, leading insurance law expert John Berrill said the report recommendations were a solid first step towards stopping conflicts of interest in commission based mis-selling of life insurance products.
The Financial Services Council Life Insurance and Advice Working Group (LIAWG) has made a series of recommendations for reforming the life insurance industry after serious concerns were raised by the Australian Securities and Investments Commission in October 2014.
“A commission based system has not served consumers well,” said Mr Berrill.
“This report tackles up-front commissions and recognises that they have encouraged poor conduct in the industry.
“We welcome changes to the way up front commissions are to be charged so they are capped and to prevent ‘churning’ (where people are pushed to change policies when they don’t need to),” said Mr Berrill.
“Commissions are the root cause of the problem of mis-selling in the life insurance industry. Advisers strongly believe that commissions are essential for maintaining the financial stability of the industry. But the question is what evidence is there that the banning of all commissions would blow up the life insurance adviser industry? It is incumbent on the industry to provide empirical evidence to back up its case.”
The introduction of a Code Conduct is also welcome and once in place, should be extended to include advisers, said Mr Berrill.
Maurice Blackburn, together with the Consumer Law Action Centre, Financial Rights Legal Centre and Choice made a submission to the Life Insurance Industry inquiry arguing that incentive based selling of life insurance products should be scrapped.