AFA calls for more vision for life insurance

Brad Fox

Twelve months on from the release of ASIC Report 413 into Retail Life Insurance Advice, the issues to be resolved by the Life Insurance Framework (LIF) need greater focus and vision, according to the Association of Financial Advisers (AFA).

“On the 9 October 2014 ASIC released their highly targeted report into the quality of retail life insurance advice,” says AFA CEO, Brad Fox. “Now, a full 12 months later, we have seen an FSI recommendation for level commissions only, the Trowbridge Report and the Life Insurance Framework released by the former Minister, Josh Frydenberg. We have also seen the issues widened beyond quality of advice to include regulator and government confidence in the integrity of life insurance advice. But will these measures actually resolve these issues?”

Mr Fox says to ensure the real issues facing the industry remain in sharp focus, the AFA is continuing discussions with a range of stakeholders ahead of meeting with the Assistant Treasurer, the Hon. Kelly O’Dwyer MP next week in Canberra.

“We have sought ongoing feedback from members throughout the last 12 months including at our July National Roadshow and the National Life Insurance Roadshow we held in September,” Mr Fox says. “In the last two weeks we have held further discussions on the life insurance reforms with many advisers including a group of risk-only advisers who have been active in meeting with Queensland Liberal MP, Bert van Manen, a former financial adviser. All of these discussions lead to the same conclusion – the primary concern of advisers is that the three-year clawback pushes too much responsibility from the insurers to advisers and doesn’t support the Best Interests Duty responsibilities owed to the client.”

Mr Fox says the AFA has discussed this issue with Mr van Manen and will share this thinking with the Assistant Treasurer and Minister for Small Business Kelly O’Dwyer.

“It is important that Government appreciates that shifting of responsibility from the institution to the adviser threatens the future of advisers that own or are employed in small business advice practices,” he says. “It also risks worsening the $1.6 billion annual cost to government caused by underinsurance if there are fewer advisers.”

The AFA believes the LIF has placed too much focus on adviser remuneration and not enough on creating a long term solution that can deliver a positive vision for more Australians to have the financial security provided by life insurance. “The current framework may deal with some of the public perceptions around commissions, but it doesn’t offer a true win for the public or the common good,” Mr Fox says.

The AFA will share some thinking on a solution that will meet the challenge to improve Australia’s understanding of the role life insurance plays in supporting financial security, and the role that advice plays in securing the right protection and valuable support when it is time to claim.

“Strong undertakings have already been made across the industry with regard to raising minimum training and education standards for financial advisers which will deal with the compliance and reputation concerns of ASIC and government,” Mr Fox says. “The real opportunity now is to increase the number of Australians holding advised life insurance. More people would have the financial security they need which decreases government expenditure to support them. The larger pool of premiums helps achieve economies of scale that can reduce price pressure on premiums. Advisers will have much greater demand on them for advice which ensures their financial viability in a lower commission world. Australia wins if we focus on the right things.”

The AFA will be asking the Assistant Treasurer to support some improvements in the LIF starting with clawback, and to support the call for the industry to develop a vision for the future of life insurance for the good of the Australian community. “With this support, a far better vision for life insurance can be delivered,” Mr Fox says.