Inside Money: Life-changing event as AMP slashes commissions

What impact will changes in Australia have on the NZ life insurance industry? Photo / Brett Phibbs

Late last month, following fast on the publication of the contentious 'Trowbridge report' on Australia's life insurance industry, AMP - one of the biggest players both here and across the Tasman - announced a shock slash-and-burn programme for its adviser commissions, effective July 1 this year.

The new measures will see upfront life product commissions capped at 80 per cent (of first-year premium) with a 20 per cent annual renewal payment for the duration of the policy.

"AMP advisers will have access to this year one commission only once every five years per policy," AMP says. "This will be irrespective of the life insurance provider and applies to all insurance policies written since 1 July 2010."

The new AMP rules represent a dramatic departure from current practice, where upfront commissions average about 130 per cent (and they're much higher in NZ) with no restrictions on renewals.

Craig Meller, AMP chief executive, described the changes, which are broadly in line with the Trowbridge recommendations, as the "initial steps towards a fee for service model".

This is an interesting move from AMP, which in effect is putting the squeeze on its internal and aligned advisory forces while at the same time making the firm's life insurance products less attractive to independent advisers - all pitched as a consumer-friendly initiative.

Unless all other life insurers follow AMP's lead the group will be more dependent than ever on its, admittedly strong, tied distribution. But AMP may be betting all insurers will soon be compelled to introduce Trowbridge-like reforms.

In its recent review of the Australian life insurance developments, NZ actuarial firm, Melville Jessup Weaver (MJW), reckons "upfront commissions look like they are going to be limited in Australia".

"... it's just a matter of how much and when," the MJW report says. "Will NZ follow suit?"
Maybe, MJW says.

"... it is quite likely that we will see some interest from the authorities in NZ, and if Australia can arrive at an agreed model that would achieve the aims of the FMA [Financial Markets Authority], it would potentially be easy to adopt it over here," the report says.

"The key question then becomes, if something like the proposed Australian model is adopted here, what will the impact be on the industry?"
Life will never the same.