The life insurance industry needs to talk to government about more than just commission payments, says AIA’s Head of Distribution Damien Mu.

“The Ripoll and Cooper reviews recognised the importance of risk, but we need to take a position to make the discussions go further,” he told insuranceNEWS.com.au.

“This is an opportunity for the life industry to engage with government and talk about issues such as underinsurance.”

Mr Mu says the focus to date has been too much on commissions and how to abolish them.

“We are investing in technology and operating systems to make the industry more efficient, but we need a review of the revenue and what is the best alternative,” he said. “But first we have to encourage people to look at risk to reduce that underinsurance gap.”

The problem of people not buying life insurance has troubled the industry for many years, and has been exacerbated by the small numbers of pure risk advisers.

Industry sources say that out of 18,000 advisers there are about 2000 who deal only with life insurance advice. There are possibly a couple of thousand more who provide both investment and risk advice.

The lack of interest in protection is not helped by superannuation funds providing some default life cover, which on average varies between $100,000-$150,000 of protection.

“The default cover is higher for younger super fund members but then it tapers off dramatically,” Mr Mu said. “We need to explain to people that this default cover is probably inadequate.”

He says the discussions on how risk advisers are paid needs to be talked through with government more as well.

“We have seen the fee-for-service model being suggested but has anybody asked the consumer what they want,” Mr Mu said.

“The fee-for-service model looks good, but will anybody pay it?”

Commission payments for life insurance is favoured by many because policies take time to arrange and this is a better way of remunerating advisers than charging by the hour.

It is not unknown for a risk policy to take a couple of months to arrange.

The ongoing commission would also cover when a claim is made, which is inevitably through an adviser.

AIA, for example, sells only through advisers, superannuation funds and partnerships with service providers such as BT.

Mr Mu says there are various payments models that could be used and these need to be discussed with government.

“Perhaps we look at a fee-for-service as an upfront payment and a commission as ongoing,” he said.

“I suspect we will end up with a hybrid system that includes both fee-for-service and commissions.”