The Association of Financial Advisers (AFA) thanks the Financial Services Council (FSC) for raising the issue of a sustainable insurance industry with the delivery of a life insurance framework.

“A sustainable insurance industry is key to the long term benefit of all stakeholders, particularly consumers, and the FSC’s new framework is a solid first step in the right direction,” said AFA CEO Richard Klipin, “however there is much devil in the detail to now finalise and negotiate.”

Mr Klipin said the coming months will be a test of leadership and resolve.

“We thank the FSC for its consultative approach and willingness to engage key stakeholders,” Mr Klipin said.

“As an industry, we own our response to the proposed framework. However, decisions which change the way advisers currently operate need to be founded on solid, robust data.”

Mr Klipin said the AFA supports some but not all of the measures put forward by the FSC and has proposed a range of alternatives.

Key concerns

Adviser remuneration and claw-backs

Three-year responsibility period
When managing risk through insurance, clients will take a long-term view, thus an expectation of a policy remaining in force for at least 3 years is reasonable.

However there are two things that may impact this:

• Change in client circumstances leading to lapses – the punitive impact of this  on advisers needs to addressed
• Innovation/better products – There are important implications for advisers who will need to comply with the best interests duty through this process.

Hybrid (commission) remuneration
Hybrid remuneration is the most effective way to align the interests of consumers, advisers, licensees and product providers. It encourages a long-term view and promotes improved persistency levels for all involved. It also encourages the delivery of a clear service proposition.

The AFA proposes that where hybrid commission is chosen, a one-year responsibility period is appropriate.

Strategic issues for the Joint Working Group

Underinsurance
Australians are still chronically under-insured and the level of underinsurance in the Australian market place needs to be urgently addressed

Investment in skills and capabilities
It is time for the industry to invest in skills and capability in the profession. A better skilled adviser community is a more productive community. Collectively, we need to establish an industry capability to build, develop and incubate new advisers who are competent to advise on risk requirements for all Australians.

Productivity and efficiency gains
The Life Insurance industry needs to make it easier to access its products and services. Many of these initiatives are within reach and will require a clear focus.

1. Technology enhancements and automatic upgrades to the latest product version  are essential - this is a key driver of product replacement
2. Systems need to be developed to allow online increases of existing business
3. Forward underwriting for personal circumstances
4. Tailored personal statements that allow for future increases.

“We need to be assured that any change to the life insurance industry results in consumers having continued access to high quality advice about their life insurance needs at an affordable price and for advisers to be able to continue to act in the best interests of their clients,” Mr Klipin said. 

“We look forward to working with the FSC in the next phase of this process.” 

6 August 2012