The Australian Financial Complaints Authority has rejected a life insurance policyholder’s bid to obtain a portion of the commissions paid to his adviser.

The policyholder says his insurer breached its obligations by continuing to pay the adviser after he stopped being an authorised representative of his financial planning licensee.

He says he is entitled to a refund of commission payments from December 19 2019, when the adviser left the company, to January 29 last year, when the policy lapsed. 

But the authority has rejected the argument that the commissions formed part of the premiums paid to the insurer during that period.

It says the policyholder understood the cost of the policy when he agreed the insurance contract.

“He also understood commissions would be paid, at no additional cost to him, by the insurer to his adviser’s licensee,” the authority said in its determination. “The complainant entered into the contract on this basis. It would not be fair to require the insurer to refund part of the premiums paid when the complainant has no entitlement to those monies.”

Insurer AIA says the obligation is to pay commissions to the licensee company, not the adviser directly. It says the departure of a servicing adviser does not change the amount of a policy’s premium and the complainant has not suffered loss.

The authority says commissions enable advice companies to generate part of their revenue from product issuers, with the intention to keep advice costs lower than would otherwise be the case.

It says commissions are governed by distributor agreements and the policyholder “is not a party to these contracts and therefore has no rights under these contractual arrangements”.

The policyholder’s contractual rights are set out in the product disclosure statement, it says.

Click here for more from the ruling.