The existing Life Insurance Framework (LIF), which sets a 60% upfront commission cap and a 20% ongoing cap, was implemented by the erstwhile Coalition government. Despite nearly eight years having passed since its introduction, many industry experts are now questioning its continued relevance and effectiveness.
Nathan Rees, head of external affairs and public policy at MetLife Australia and former Premier of New South Wales, has been vocal about the limitations imposed by these caps. Speaking at the Professional Planner Advice Policy Summit, Rees stated, "Getting rid of caps is part of making things more affordable. It's not a silver bullet, but it's part of a suite of solutions." He further argued against government-determined pricing, saying, "I cannot think of another legitimate product where distribution pricing is government-regulated."
Rees's position has found support from other political figures, including Bert van Manen, a former financial adviser and current Coalition member. Van Manen argues for a more flexible system, pointing out discrepancies with other financial sectors. "You charge a fee that you agree to with your client – why isn't that the same on the insurance side, whether it’s a fee or commission?" he queried.
The subject of commission caps was further analysed through a Slido poll during the summit, where 53% of financial services delegates favoured either raising the cap to an 80/20 model or maintaining a lower cap. A minority, 12%, suggested banning commissions altogether.
Van Manen believes an 80/20 model would be merely a starting point, articulating a vision where such caps are abolished entirely. Reflecting on his earlier legislative efforts, he stated, "I spoke against the original legislation when we introduced it back in 2015. Disappointingly, I lost that argument. However, many of the arguments I put forward are now proving valid."
Sam Perera, director of Perera Crowther Financial Services, noted the necessity of reviewing the existing remuneration model in light of current challenges in the life insurance landscape. "The sooner we accept that, the sooner we can design a framework that benefits everyone," he remarked.
Furthermore, as the Labor government rolls out the Delivering Better Financial Outcomes reforms, introducing a new adviser tier, the industry stands at a crossroads. Christine Cupitt, CEO of the Council of Australian Life Insurers, expressed cautious support for the new class of advisers, emphasising the need for "all the right consumer protections and guardrails."
Cupitt suggested that the naming of the new adviser class should change to better reflect their role, proposing terms like 'consultant,' 'provider,' or 'agent,' rather than financial adviser. Meanwhile, Perera conveyed his support for Non-Commissioned Advisers (NCAs), believing their incorporation would broaden insurance access, though he urged for a tempered approach to ensure adequate safeguards are built.
Ultimately, the debate on commission caps is part of a broader conversation about the role of financial advisers and how best to serve the needs of Australians within the evolving insurance landscape. Industry leaders and policymakers are recognising the imperative for updating models to ensure sustainability and growth.
