The distribution of risk insurance products

The Australian life insurance industry offers four main policies. These are:

  1. life cover
  2. total and permanent disability (TPD) cover
  3. trauma cover
  4. income protection cover.

These products can be held on their own or on various combinations.

Their relative position, solo and doubles, in the Australian insurance policy cosmos is shown here[1]:


Obviously life insurance and income protection insurance policies dominate the life insurance cosmos.

Life insurance products are distributed via four main channels. These are:

  1. Australian Financial Services Licence Holders (AFSLs) who are related to the insurer
  2. AFSLs who are not related to the insurer, such as Dover Financial Advisers
  3. group life arrangements, such as industry superannuation funds and corporate super funds
  4. direct distribution including internet based distribution models.

Most insurance policies are distributed via AFSLs. The AFSL system is in effect a licensing and sub-licensing system, whereby ASIC licences a person, the AFSL, and the AFSL then licences other persons, ie authorised representatives, or advisers, to advise on the financial services covered by its licence. The relationship between the AFSL and the authorised representative is also a form of agency, both a statutory agency under the Corporations Act and a general law agency under the Common Law. The AFSL is responsible for the actions of the advisers, subject to the limits of their authority and notice thereof provided to clients.

Advisers are remunerated via a number of modes, with commissions the dominant mode for risk insurance advice. Commissions are paid by the insurers, can be as much as 130% of the first year premium and 20% of later year premiums, and are included in the premium costing computations which mean they are in effect paid by clients. Most AFSLs receive a share of the commissions paid to advisers by the insurers.

The commission driven model has engendered a sales culture, with clients often referred to as customers, insurance policies referred to as products and the AFSL/adviser relationship referred to as a distribution channel. This industrialised language is unfortunate and works against financial planners being viewed as professionals. This is unfortunate because the majority of financial planners are very professional and otherwise display the characteristics of a profession.

This language issue is discussed in detail by Lujer Santacruz in an article published on 19 January 2016 in Professional Planner that you can read here: The public perceives that “wheeler” and “dealer” go together.

[1] ASIC Report 413 Review of retail life insurance advice at page 19

The Dover Group