Aussie new insurance business falls after commission capped

If regulators want an indication of what might happen if they regulate insurance adviser commissions, they could look to Australia.

Friday, February 22nd 2019, 6:00AM

Rob Everett, FMA chief executive

Over the Tasman, regulators have capped commission for life insurance policies at 80% of the first year’s premiums as of January 1 last year, dropping to 70% from this January and 60% from January 1, 2020.

Data by DEXX&R shows that preceded a major fall in the amount of business written.

In the 12 months to September 2018, the amount of individual lump sum – death, TPD and trauma – was at its lowest level in five years.

There was A$1.2billion of lump sum new business written in the year to September, down 14.5% on the year before.

Disability income new business decreased by 8% to $483 million over the year and group risk dropped by 2%. In Australia, the group risk market is dominated by premium received for the prison of default cover for super funds.

Only four of the top ten life companies recorded an increase in disability income new business over the year to September 2018.

AIA recorded an increase of 64.9% to A$45 million, AMP an increase of 18.9 % to A$73 million, CommInsure an increase of 21.5% to A$34 million, and ClearView an increase of 9.4% to A$22 million. That includes indexation, aged based and voluntary increases.

Total in-force business (written by life companies remained unchanged for the year at A$15.8 billion.

The New Zealand Government has revealed its intention to clamp down on high upfront commissions and soft-dollar incentives for insurance advisers, after a critical report into the life insurance sector by the Financial Markets Authority (FMA) and Reserve Bank.

That report said commissions structures for advisers should be reviewed to ensure they were incentivising intermediaries to deliver good customer outcomes.

FMA chief executive Rob Everett appeared before Economic Development Science and Innovation select committee on Thursday.

He said the report had made a distinction between the sales incentives offered to employees and advice commissions.

“As you know, advice is more complex, because people, where people are buying products through an advice channel as opposed to directly from the provider, which generally speaking should be a good thing, people don’t like to pay up front for advice. So it puts you in a position of having to look at the structure of remuneration for the advisers that would be different than in an employed environment.

"And that is complex, it was a big part of the debate on the financial advice bill, and our view as stated in the report is that, we want product providers to work very hard at structuring commissions and other incentives for advisers so that they respond to the needs of the customer - we’re not advocating they be banned altogether.”

The Royal Commission of Inquiry into Misconduct in Australia recommended commissions be ultimately reduced to zero.

Tags: Commission Life insurance