Australia's insurance sector risks facing the same fate as the United Kingdom's insurance industry if the federal government's proposed ban on risk insurance commissions is carried through, the opposition's financial services spokesman has said.
Senator Mathias Cormann said the Labor government's proposed banning of commissions for risk insurance as part of its Future of Financial Advice reforms could have bad consequences, as evidenced by the UK experience.
"The banning of commissions for risk insurance has had very bad consequences in the UK when they went down that path," Cormann said.
"We shouldn't make the same mistake. Underinsurance is already a significant problem in Australia, which would only get worse if we get this wrong."
He said the UK had since reintroduced commission-based payment structures for risk insurance and Australia should learn from its experience.
"Treasury is well aware of the issues around the proposed banning of commissions on risk insurance and the UK experience," he said.
Questions needed to be asked about whether Financial Services and Superannuation Minister Bill Shorten would act on objective advice or serve sections of the union movement, he said.
"The question will be whether Bill Shorten will accept and act on objective advice or whether he will blindly follow the pitch put to him by sections of the union movement," he said.
Late last month, Association of Financial Advisers chief executive Richard Klipin said Shorten's endless debate about adviser remuneration was "clouding the real issues", which were inadequate levels of retirement savings and chronic levels of underinsurance.
"There is now a plethora of research supporting the fact that if commissions are banned, many ordinary Australians will not seek life insurance advice," Klipin said.
"Without advice, Australians are often significantly underinsured or more commonly, and more worryingly, not insured at all."
