The topic of life insurance commissions has long elicited a diverse range of views. This proved especially true during the recent Royal commission into the banking and financial services sectors. Throughout the program of seven hearings, the role of remuneration structures in various categories of ‘misconduct’ was examined in depth by the Commission. Media coverage was predictably one sided, running the traditional line that commissions are inherently conflicted and therefore inherently contrary to the best interests of consumers. This view was expressed in relation to commissions of all type, including life insurance commissions, mortgage broker commissions, and grandfathered trailing commissions.
Zurich has long supported the view that:
• Expert financial advice across complex categories such as life insurance is of enormous value;
• Advisers should be paid fairly for the cost of providing advice at the time they provide it;
• Consumers should have a choice in how they can pay for that advice;
• Commissions play a vital role in allowing the everyday consumer to be able to access advice.
Furthermore, Zurich has long rejected the view that life insurance commissions are disliked and mistrusted by all consumers, believing
instead a significant proportion prefer – when given the choice – this method of remunerating their adviser. Zurich made a submission along these lines in response to the Round 6 (Insurance) hearings of the Royal Commission.
That submission referred to research we had conducted as far back as 2010 that examined consumer attitudes to life insurance commissions.
Subsequent to that submission, Zurich engaged the highly respected research consultants, Rice Warner, to conduct an up – to – date examination of this same topic.
This report summarises their key findings, along with other relevant research conducted by Zurich throughout its global network.
Advisers are seen as the most reliable source of life insurance help
Given the low levels of life insurance literacy already described, the proportion of consumers who are equipped to effectively ‘self-help’ online is small. Unsurprisingly, many need expert help. Oxford University researchers found that in Australia independent financial advisers were the preferred source of that expert help.
But the cost of advice is a barrier
Even the most basic life insurance advice can take at least 8 hours of preparation time. Charging this at a market average margin can easily see this advice cost $2,000 or more. Indeed, Rice Warner surveyed advisers about what they would need to charge as an out of pocket fee for life insurance advice, and found almost two thirds would need to charge $2,000 or more. Only 1% said that they could charge less
than $500 (although even this is possibly overstated).
The gap: cost to provide v willingness to pay
When consumers were asked about their willingness to pay an out of pocket fee for life insurance advice, there was an alarming – although unsurprising – disconnect between what they would pay and what they would need to pay.
78% of consumers said they would only be willing to pay $500 or less (28% unwilling to pay a fee at all), and none were willing to pay $2,000 (or more).
*This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs.