Life advisers would sell policies at a loss if recommendations from the Trowbridge report on life insurance are implemented.

The report recommends advisers be paid a level 20% commission and an initial advice payment of up to $1200.

The advice payment could not be claimed again for at least five years.

For policies with annual premiums below $2000, advisers would be paid up to 60% of the first year’s premium. 

Report author John Trowbridge admits the sums fall below the cost of providing advice on life policies. Some advisers have suggested a figure of $3200 for setting up a life policy.

“It is below the cost of providing advice, but a lot of advisers take no front-end payment,” he said.

“It is up to the advisers to work out how this will work and many will move to a fee-for-service model.”

Mr Trowbridge says 80% of advisers receive upfront commission of 120%, and that is “part of the misalliance between advisers and insurers”.

The report also recommends advice payments be given only on business that involves a client talking to an adviser – not on direct sales or group life policies.

Current arrangements for retention periods would still apply to commission on the first year’s premium and to the advice payment if claimed.

Mr Trowbridge calls for the Australian Securities and Investments Commission to produce a legal framework for enforcing the payment model. He wants it introduced next year.

The report also recommends a ban on advisers receiving benefits that might influence their decisions. This could cover certain volume-based payments, free or subsidised business equipment, hospitality and some “buyer of last resort” arrangements.

Such benefits would be replaced by a 2% licensee support payment, based on premiums in force and payable to licensees by insurers.

This payment would “promote competition in the life insurance advice market by contributing to the viability of licensees that are independent of life insurers or other larger financial institutions”.

Mr Trowbridge also wants approved product lists expanded to include at least seven insurers, to “ensure competitive access to a least half of the 13 major life insurers”.

Most independently owned life advisers have open approved lists, featuring most major insurers, but on investment platforms this is often limited to one or two.

The report calls on licensees to re-examine the “culture, behaviour and practices” of the advice process, to improve consumer understanding of life insurance.

Mr Trowbridge wants a taskforce of professional associations, licensees and advisers to look into such issues and inform an industry code of conduct, similar to that for general insurance.

“An industry code of practice, if embraced by life insurers and consumers, can lead to improved standards of practice and service to consumers, and thereby to improved trust and confidence in the industry,” the report says.

“If realised, these benefits can be expected to flow on to a greater interest by consumers in seeking life insurance advice and improved life insurance coverage across the community.”

The report recommends reviewing the industry’s reaction to the proposals in five years.