The Government must take a “balanced regulatory approach” to reform the life industry to avert a worsening underinsurance problem, according to new research commissioned by major life insurers and peak bodies.

Changes introduced in recent years, such as the gradual capping of commissions, have forced many advisers to quit, while the ones who have stayed on have been forced to focus on wealthy clients who can afford the upfront fees.

Based on current trajectory, only the richest 15% of Australians will have advisers to guide them on their life insurance needs within the next three years, the research from Choice & Access to Life Insurance (CALI) finds.

“Significant demographic pockets of underinsurance are emerging,” CALI says. “The research reveals that individual life insurance could become a product accessible only by Australia’s wealthy.

“There is a material access gap emerging impacting lower to middle-income Australians when they need advice at key stages of life like buying a home, starting a family or transitioning to retirement.”

CALI is backed by Zurich, TAL, AIA, MLC Life and peak bodies, the Financial Services Council, the Financial Planning Association and Association of Financial Advisers.

It says community concerns over the commission model are justified and need to be addressed, but warns that calls for further changes including the outright ban of commissions could backfire.

“If this were to occur the effect would be dramatic, essentially putting life insurance advice out of reach for ordinary Australians.”

Conservative estimates suggest about 21% of Australians aged 25-35 with children or non-working spouses are not adequately insured and one in five have not been able to access financial advice. Many are unable to afford the upfront fees for advisers to address their specific needs.

“Addressing the issues surrounding commissions and financial advice is not easy,” CALI says.

“We argue policymakers and regulators should strive for the equity of access [that] commissions bring, recognising the existing explicit best interest duty in Australia and the established and well-resourced regulatory infrastructure and conduct supervision, including lapse surveillance and file reviews.

“Without a balanced regulatory approach, more Australians will find themselves in a situation where, if they cannot pay for an adviser, they will have either inadequate or no life insurance.”