A new life insurance report from MetLife has cautioned against axing the adviser commission model ahead of next year’s review into the remuneration arrangement.

The Value of Life Insurance report says consumers should be given a choice of how they want to pay for advice: either through a fee-for-service system or via commission.

It says reducing commissions will push up the cost of advice, restricting access to quality advisers and lead to Australians relying on off-the-shelf life products that may not be suitable for their personal needs.

Underinsurance may also increase while consumers with lower economic means will lose access to advice.

“While different payment models apply around the world, no country that has a strong, voluntary, stand-alone life insurance system has banned commissions,” the report said.

“The removal of commissions on life insurance in Australia would be a global first.”

Treasury will next year examine the commission model as part of its review of the Life Insurance Framework (LIF), which caps the amount of payments made to advisers for services rendered.

The Treasury review is part of its broader examination into quality of advice - including general insurance advice - offered to consumers.

The Hayne royal commission in its final report released in 2019 had recommended that unless the LIF review found a clear case of under-insurance, commissions should be further reduced to zero.

In the MetLife report, the life insurer says its research found consumers who engaged an adviser are more informed about their life insurance than in previous studies.

A higher proportion are able to state their level of cover and premium amount paid, as well as explain the difference between stepped and level premiums, the report said.

But confusion around the value of financial advice remains, suggesting the profession needs to step up its efforts to highlight how consumers benefit when they seek professional guidance.

“To counteract the downward trend in the perceived value of expert financial advice and life insurance, advisers can educate their clients on what they do and how they add value,” the report said.

“Building trust is also key, so that clients equate the value of the advice with the value they receive from the financial products purchased.”

The wide-ranging report also touches on the role of life insurance, highlighting the safety blanket it provides to Australians, who may otherwise have only the Government to rely on if they struck with a debilitating illness or injury.

“Life insurance is generally more financially efficient than a savings strategy,” the report said.

“This is because it pools the risk of individuals as a collective group which generally makes premiums less costly for the individual policy holder.”

The report says industry collaboration is vital to reshape the life insurance industry in a way that continues to deliver value for consumers, organisations and shareholders, driven by relevant research and insight.

“The industry is under the microscope, facing significant regulatory change and shifting consumer expectations,” MetLife Australia CEO Richard Nunn said.

“Now is the time to work together to adapt, educate and remain relevant.”

Click here for the report.