The Federal Opposition says the insurance industry will face significant problems, including an increase in underinsurance, if risk commissions are banned by the Federal Government.

Liberal senator and spokesman for Financial Services Mathias Cormann told the Insurance Council of Australia’s Regulatory Update seminar last week that the proposed change as part of the Future of Financial Advice reforms could have a “bad” impact.

The reforms propose a ban of commissions and volume-based payments for the distribution and advice for retail investment products, including risk insurance.

Senator Cormann says underinsurance in Australia is already a problem and a ban on commissions would make it worse.

“We all know [that] the problem areas in FOFA are opt-in, the definition of statutory fiduciary duty and how it is to be enforced, the banning of volume rebates and the banning of commissions on risk insurance,” he said.

“It is well and truly time for [Assistant Treasurer] Bill Shorten to make some decisions on FOFA so everybody knows what they’re dealing with.”