Well, according to an article in Money Management, the payment of commissions to life insurance salesmen in Australia will end in 2013. This is part of the reforms that are to take effect in the Australian life insurance industry. The ban on commissions will also extend to bonuses for sales volumes.
So why are we mentioning these Australian reforms on our NZ blog? Because we were wondering what would happen if NZ followed Australia’s lead on these reforms.
Insurance companies typically pay insurance advisers over 200% of the first year’s premiums for each policy sold. This means that all the premiums that you pay for the first two years of your policy go to the adviser and these costs are built into the insurance premiums that you pay. The commission percentage can be even higher, depending on the number of policies that an adviser sells in a year.
If insurance companies were no longer permitted to pay advisers a commission, what would happen?
Advisers would have to charge their own fees and this fee would be itemised separately from the insurance premiums, and would no longer be a hidden cost. In effect, the price of insurance would go down and you, the consumer, would be able to decide how much you are prepared to pay for the advice.
So, how do you put a value on 'advice'? How much would you be prepared to pay an adviser to tell you how much insurance you need or which product to buy.
What’s changing the game is ‘online’ life insurance, where you can buy life insurance without 'advice'. Consumers can now go online and research products in their own time; they can review insurance companies, read through policy wording, compare quotes and complete their online purchase, all without an insurance adviser holding their hand.
So, in an emerging online world where so much information is essentially free what value and price would you put on ‘advice’.