Life insurance is a risky business and, from next year, it is going to get a lot tougher for the traditional sales agents. The high commissions they are paid will, at last, have to be fully disclosed to consumers.

We all need life insurance to various levels. Some people in certain occupations or with particular health risks may need specialist advice on what products and features to include in their insurance cover.

If it was known how much the insurance salesman was making out of an insurance policy, what would change?

Plenty is the answer, according to some of the leading practitioners in the industry.

If the buyers of life insurance products ever got to know how much the salespeople made out of selling a policy, then they would simply stop buying them.

The result, according to the life agents, would be little short of catastrophic: people would be even more under-insured, leaving taxpayers to foot an ever-increasing social security bill; the small businesses (of the life agents) would collapse; country towns that have already waved farewell to their banks would also lose their local life agents; and life, as we know it, would change forever. If you think that sounds like a load of melodramatic rubbish, you are right.

When people are looking for cheap laughs, Hansard records of joint parliamentary committee sittings are not normally the place to turn.

But the Hansard record of the Joint Committee on Corporations and Financial Services' sitting on March 5 is a racy little read.

The committee's terms of reference are to look at the requirements under the Financial Services Reform Act to disclose commissions on risk insurance.

Appearing before it were a veritable who's who of the financial planning and life insurance agents representative groups.

The submissions split into two opposing camps: in favour of full disclosure were the Financial Planning Association, the Investment and Financial Services Association and the Australian Consumers Association; in the ``too much disclosure just confuses consumers'' corner were the National Insurance Brokers Association of Australia, Insurance Advisers Association of Australia, Association of Financial Advisers and the Life Advisers Action Group.

A more audacious set of self-interested submissions from the life agents it would be hard to imagine. Some argued that their small businesses would be wiped out or ``thrown to the dogs'' as the big end of town consolidated the industry. The insurance industry is already consolidating and commission disclosure is not the main cause of that.

Other submissions argued that, with full disclosure, no longer would they be able to drive 300 kilometres to help a little old lady fill out the claim forms in exchange for nothing more than a cup of tea and a scone or two.

That sounds quite noble, but it is really papering over inefficiencies and it highlights that the cost and method of distributing and servicing these products have to come down. The committee heard that commissions are already coming down and that, in the past 10 years, have fallen from 100 to 120 per cent to between 30 and 50 per cent.

Perhaps the most revealing argument against commission disclosure is that insurance is ``sold, not bought''. People, apparently, do not really think they need an insurance product, so have to be talked into it. The argument goes that if you tell people what it really costs they will not want to buy it.

The same arguments were used when disclosure was strengthened in the 1980s for investment products.

The result is by no means perfect but has led to unbundling of complex products. It also has made professional financial advisers to better explain to customers what it is that they do to earn their money.

Then the joint parliamentary committee had to digest the baked-beans argument. A Brisbane life agent had three cans of baked beans, bought from different shops at different prices, to present to the politicians. He argued that all customers need to know are the price and the contents - the commission or profit margin does not need to be disclosed.

Customers, he argued, will just think that is money in the agent's pocket. That bit he got right.

Robin Bowerman is managing editor of Personal Investor, Shares and Asset magazines. ------------------------------ Publication: The Sunday Age Publication date: 6-4-2003 Edition: Late Page no: 16 Section: Business Length: 718 ------------------------------

  Printer friendly version        Email to a friend