There will be no winners if the Federal Government proceeds with its ban on commissions for life insurance sold through superannuation.

According to research house Dexx&r, advisers, consumers and insurers will all be losers with a decrease in new business premiums for life insurance by $31 million in 2013 and this figure growing each year to $183 million by 2020.

The total decease in new lump sum life insurance business during those eight years is estimated to be $742 million.

For advisers, this will represent a loss of $294 million in commissions by 2020.

Dexx&r MD Mark Kachor told insuranceNEWS.com.au banning commissions will cost consumers more as well.

“If a consumer wants to spend $3000 in premiums on a lump sum life policy, the adviser will receive a $3300 commission,” he said.

“If the consumer goes direct, they will have some of the commission rebated, but the insurer won’t be doing a full needs analysis.

“Post-Future of Financial Advice (FOFA) reforms, the consumer will receive a 25% discount on their premium as there is no commission.”

Mr Kachor says the adviser will still have to undertake the needs analysis, research the best product, handle the paperwork and medicals so will want payment for their time.

“The client will now being paying $2500 in premiums but the adviser will want a $3000 fee to cover their work so the final bill will now be $5500,” he said.

“And when the adviser charges 11% of the renewal as a fee, it will take the consumer 12 years to get ahead. So how does the client win under FOFA?”

Mr Kachor says lawyers have been working on a no win/no fee basis for a number of years and will take 30-40% of the agreed damages as a commission.

“As a result this practice has exploded in the legal profession in the last 10 years as lawyers only offer this on cases they expect to win,” he said.

“So growth in legal commissions is acceptable.” 

Mr Kachor says the independent advisers will be the hardest hit by the commissions ban although they will still receive some income from life insurance products sold outside superannuation.

“The ban is going to kill the enthusiasm of advisers wanting to sell life insurance,” he said.