The ban on “conflicted remuneration structures” for retail investment products now has the potential to extend to risk insurance, under a new Federal Government initiative.

The Government announced last week that the consultation process for its “Future of Financial Advice” reforms would include seeking submissions on whether to extend the ban to risk insurance, with a particular focus on life insurance.

This is despite the proposed ban initially excluding risk insurance on the basis that “insurance has different features from investment products, including the fact there are no investment funds which might be used to pay for the advice”.

Its change of heart has met with a less-than-enthusiastic response from the National Insurance Brokers Association (NIBA), which has questioned the relevance of such a ban.

“There is no evidence of market distortion or consumer-driven need to introduce disclosure on risk insurance products,” NIBA CEO Noel Pettersen says.

“The insurance policy is simply an invitation to renew annually and the consumer has the right to shop around if the product or price does not meet their needs.”

The Insurance Council of Australia (ICA) restricted its comments on the move to welcoming the fact the Government was looking at risk insurance commissions separately to retail investment commissions, and noted that life insurance commissions will present the bigger target for Treasury.

“We anticipate that most attention will be on life insurance given that commissions on general insurance policies which are renewed annually are more akin to a fee for service, with minimal scope for conflicts of interest,” ICA spokesman Sandra Van Dijk told insuranceNEWS.com.au.

The planned ban on commissions for financial advisers selling superannuation, pension, investment and lending products will take effect on July 1, 2012, although a number of major firms have already made moves to switch to a fee-for-service structure.

See ANALYSIS.