Australia’s largest life insurers are reportedly bracing themselves for the release of a report from the Australian Securities and Investment Commission (ASIC) that is expected to be damning of commission fees in the industry.
The Sydney Morning Herald reported that pressure is mounting for a crackdown on inappropriate incentives that lead salespeople to churn customers into new policies that are not in their best interests.
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Insurance brokers and financial planners are said to typically receive a commission between 100 to 125 % of the value of the first year of the policy.
Australian life insurers therefore reportedly need to keep a customer for at least five years to break after paying the sales commission to acquire the client.
BBY’s financial services industry analyst Brett Le Mesurier was quoted as saying that churning is not the main driver of increased life insurance policy lapse rates in Australia.
Meanwhile, Commonwealth Bank of Australia insurance sector analyst Ross Curran reportedly said an increase in policy lapses is being driven by consumers wanting to move to get a better deal.
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By GlobalDataData from Timetric’s Insurance Intelligence Center reveals that Australia’s life insurance growth will be driven by a number of factors, including government initiatives to promote life insurance, an aging population and the relatively low penetration of life insurance products in relation to other developed nations.
It notes that Australia’s life insurance penetration rate stood at 2.92% in 2012. This was below the life insurance penetration rates of other developed Asia-Pacific nations such as Singapore, at 5.6%, Taiwan at 13.64%, and South Korea, at 7.96%.
The ASIC regulates Australian companies, financial markets, financial service organistions and professionals who deal and advise in insurance, investments, superannuation, deposit taking and credit.
