ASIC Life Insurance Advice Review – ‘Unacceptable Level of Failure’

Australia’s life insurance advice sector has been placed on notice by ASIC following the release of a report that identifies ‘… an unacceptable level of failure’ by advisers to comply with the laws relating to appropriate advice and prioritising the needs of the client.

ASIC Deputy Commissioner, Peter Kell, has placed Australia's life insurance advice sector on notice to improve its standards

ASIC Deputy Commissioner, Peter Kell, has placed Australia’s life insurance advice sector on notice to improve its standards

In a damning assessment, ASIC’s Review of Retail Life Insurance Advice found that more than one third (37%) of its sample of 200 advice files were considered to have failed to comply with delivering appropriate and compliant client advice.

… the life insurance advice sector needs to improve the quality of advice

The regulator says the life insurance advice sector needs to improve the quality of advice and ensure that the interests of consumers are given priority.

Part of ASIC’s review included an investigation to the reasons for the current high level of lapse rates in Australia, which are impacting the industry’s sustainability.  It identified three main causes:

  1. Product innovation by insurers, such as changing actuarial assumptions at underwriting or the redesign of key policy features such as definitions and exclusions, which leads to the repricing of policies
  2. Age-based premium increases affecting affordability
  3. Incentives for advisers to write new business or rewrite existing business to increase commission income

The report also identifies a correlation between high up-front commissions and the degree of non-compliant advice being delivered. It says this includes’… situations where the recommendation is to switch products.’

ASIC Deputy Commissioner, Peter Kell, has urged the life insurance industry to “… consider how remuneration and compliance practices can better support good quality outcomes for consumers.”  In doing so, the report makes a number of specific recommendations for both insurers and licensees:

Recommendations for insurers

  • Address misaligned incentives in their distribution channels
  • Address lapse rates on an industry-wide and insurer-by-insurer basis (e.g. by considering measures to encourage product retention)
  • Review their remuneration arrangements to ensure that they support good-quality outcomes for consumers and better manage the conflicts of interest within those arrangements

Recommendations for licensees

  • Prioritises the needs of the client
  • Review their business models to provide incentives for strategic life insurance advice
  • Review the training and competency of advisers giving life insurance advice
  • Increase their monitoring and supervision of advisers with a view to building ‘warning signs’ into file reviews and create incentives to reward quality, compliant advice

The report was based on a review conducted between September 2013 and July 2014,which considered:

  • How life insurance is sold by advisers
  • How advisers are remunerated for that advice
  • The drivers behind product replacement advice to consumers
  • The quality of the personal advice consumers receive

Mr Kell noted that the regulator is committed to working with the industry to address the problems it has identified and to improve outcomes for consumers.

Following the surveillance work and the conduct that has been uncovered ASIC says it has commenced follow-up investigations in certain cases which are ongoing.

‘Where inappropriate advice was provided we are considering enforcement action or other regulatory action’, said Mr Kell.

Click here to access ASIC’s Retail Life Insurance Advice Review.

  • Warren B.

    In conjunction to the comments I made yesterday about Mr. Kell’s opinion of advisers in our industry, I would now like to know “of the 37% of its sample of 200 advice files were considered to have failed to comply with delivering appropriate and compliant client advice” – how many were industry Super based files and/or Bank Financial Planner files? I must have my head in the clouds and be a terrible judge of character and professionalism if his figures are directly related to the advisers I’ve come to know and respect over the last 7 years. Me thinks this man has a vendetta for some reason….and I don’t like it one bit!

    • Miral

      I call this bullying tactics by ASIC just because they can. Rather than having a blanket approach ASIC needs to think outside the square with human brains and not act and behave like robots or a computer program…… Very frustrating….. Because of a few bad apples everyone gets punished……

  • Rob

    37% of files failed to meet appropriate and compliant advice. So what was the criteria for this assessment, they don’t say. Importantly 63% did. What about a pat on the back for that. Every industry is not perfect. So ASIC what us to pick up our game because 37% of files reviewed were not good enough. Does this then mean our industry is rotten to the core. No its not. Why is our industry so over examined. Just as well we are here as an industry, there would be a lot of public servants out of work without us. And of course those nasty insurers giving advisers incentives to write business. That is called marketing. Though these incentives have never personally driven me to suggest a change, but if you want to take advantage of this you can. Drug companies have been doing this for many years. Just ask your doctor, holidaying on drug company payrolls. This is far more serious because we are talking about someone’s health, being used as a financial gain and inducement.

  • Doug

    What do you expect with the increasing number of online insurance brokers ability to punch out policies without even the slightest hint of investigation into what is actually best for the client? These broker are not adviser and do not provide advice. If they are advisers then their objective is most likely not in the clients best interest. We are all grouped together with differing levels of compliance and obligations for the same clients.

    • John

      Exactly Doug! Call a phone based advertised insurance provider and they will quote you on whatever insurance you want, no advice, no policy comparison etc!!!!! We are subject to replacement products checklists so clients don’t loose any loyalty bonuses, comparing stepped to level, policy benefits, costs, underwriting requirements, through super or not….and presenting all this in a statement of advice detailing our initial fees and ongoing fees to the cent!

      Lets see your home loan brokers provide that information!!!!!

      It can take a while to create the right advice and I do it every time, so does every advisor I know.

      Now this is just another thing where some dodgy representative sample from who knows where, from unknown advice channels sour the industry of heavily compliant professionals. Tar us all with the same brush why don’t you.

  • Ian Hamilton

    I too, would like to see the actual licensees listed. As this is again, a smear on all of us in the risk insurance adviser groups.

    It shouldn’t be too hard to identify as there were only 200, vetted.

  • Jim Neslon

    I would not read too much from this report at this time, let the the regulator give us instances of the compliance/advice failure so we can see where they see the client let down.

    All of us who are giving client what is due and give them due care need not to worry. The report is for those 37% to step up or leave the profession altogether.

    • May I suggest you actually read the report Jim – there are some very good clearly articulated examples, of where the advice falls down and how it can be improved, and also good advice and how it could be high standard. As a risky, the commentary is appropriate in the examples given. (not as many as I would have liked to see, and maybe the worse chosen)
      The over all findings are most interesting.
      All levels of the advice process have been implicated, insurers; advisers and AFSL’s.
      Interesting, upfront comms in this 200 odd sample represent 80% with issues of 96%, and other comm levels represents 20% with some 4 % overall issues.

      May I respectfully suggest that you all read the 70+ page report and then provide your opinion as going off half cocked is no helpful in these forums.

  • ken

    Really ?? I am more and more convinced that we are here to keep public servants employed? When are they going to give some figures on the banks and the online policy “floggers”. I mentioned yesterday that price is the PREMIUM factor with clients cancelling or changing companies. Without the proper advice they will cancel say an Income Protection policy that they feel is too expensive and ring the online “flogger” who gives them the cheapest rate without any discussion on what they are really getting {yearly renewable cover 2 years not Age 65 etc} I somehow think it is the general public who need the schooling not the adviser.
    But as long as ASIC go down this narrow pathway that all advisers are in it for their benefit there will never be change that is acceptable. Maybe they should sit in an advisers office for a week and see the truth about how we treat out clients particuarly at claim time when they are in greiving or awe struck by the paperwork that is sent to them to complete by the insurers with no understanding of what that client is going through.
    Come on guys get in the real world for a while you may get a big surprise ??!!

  • Alyson

    Well said

  • Phil

    27 years as an adviser, I am now consulting with my Licensee conducting adviser audits. My Licensee has also appointed an “external” auditor.
    The entire compliance process has clearly become a major financial impost for not only my Licensee, but all such entities.
    The advisers I am conducting the audits with are clearly concerned with compliance and want to ensure they are undertaking all the necessary practices and procedures to fully meet the required level of professionalism ASIC keeps “crying out for”.
    But as Doug & others have said, where are these 37% “failures” coming from?
    I can genuinely and categorically state that if I felt the advisers I have audited to date had an overall fail rate of one-third or more, I would be very disillusioned with my industry – the one I have worked a total of 39 years in. Fortunately, this has not been the case.
    So yes Rob, what about some “positive” reinforcement from ASIC for the MAJORITY of Licensees and Authorised Reps trying to do the absolute right thing by their clients, meet all ASIC requirements and still find a way to maintain a profitable, ongoing business model.

    • Jason

      My heart bleeds listening to all of you advisers trotting out the same complaint about compliance impacts on your businesses.
      Face it, you are not a profession or anywhere near one. You are remunerated by up front commissions, renewal incomes, trails and ‘adviser service fees’ dialed into clients savings and investments.
      The sooner they ban upfront commissions as well as any form of collecting remuneration in any way other than an invoice the better for all Australian consumers.
      Your industry needs to wake up, everyone is on to you now!

      • Jamie Forster

        Hi Jason

        Conflicted remuneration is not, and never had been, evidence of a lack of professionalism. If it were, medicine, dentistry and law (amongst others) could not be considered professions.

        Whenever advice is provided for a fee there is a conflict between the advisor and the client/patient.

        This includes your suggested method of invoicing.

        Jamie Forster

  • Jo

    So if 37% of files didn’t comply how many advisers lost their Authorised Rep status or received breach notices. How many clients had their files re examined and any inappropaite advice rectified. Also as in previous discussions where did the files come from and are any of the respective Dealer Groups now under an EU. I haven’t heard that there has been a spike in non compliant advice. Maybe the FPA and AFA should investigate those advisers that are not complying and advise them they are on notice. It is easy to say they are non compliant but on what basis are they. If so they should be named and shamed.

  • I am not surprised by the high lapse rates, normally when I do a review and find that the client has online insurance, industry fund, direct bank insurance (KPI’s where they have to sell a bank product) or Medibank etc etc, and I do a comparison with twelve of the largest Insurance Companies, the client can’t cancel fast enough.

  • i have read the report – it’s widely available, and well worth the time taken to digest it’s content.

    While i have no issue with the report, there is clearly an issue regarding the manner in which it’s contents are portrayed in the media. 200 statements of advice is a good number from which to draw superficial observations BUT wide-ranging outbursts and declarations of an industry-wide advice failure are not justified. Quite simply, the scope of the investigation falls into the “law of small numbers” box.

    Having said that, the report does a great job of highlighting the regulator’s concerns relating to the provision of advice on insurance products. Appendix Table 9 (p 68) “Issues to consider when giving life insurance advice” is a good reminder of the steps that most advisers would take anyway – but it never hurts to remind yourself of your own good work! Similarly with Table 8 on p63 “Warning signs of poor advice” – if you read it and are comfortable then all is ok.

    It would be more helpful for the regulator to make a positive contribution to the debate, and leave the anti-adviser rhetoric to people who are paid to perform the task (ie, ISA).

    • Jamie Forster

      Well said Michael

      Like you I have no issue with the report and will consider it’s findings.

      Whilst there are certainly areas in which standards can be lifted, the generalised anti-adviser rhetoric is becoming tiresome and stressful.

  • Paul

    If the Gov’t is unhappy with the entire system then they should standardize products (a la MySuper) and sell it themselves! They can call it “MyInsurance”. I can guess what will happen then……

  • Long Termer

    From the reading of the report, I have to ask for clarification on whether they are referring to ONLINE Providers as RETAIL or not. My reading between the lines is that it may not be including that component of insurance advice or sales.
    My next question is what were the interpretations as to the 33% that were considered inappropriate or bad advice. On whose interpretation was that? Mr kell & ASIC. Do they have an independent qualified Industry adviser that adjudicates these files, or again is this on their interpretation.
    Appropriate advice falls under a number of different areas when you are actually in the “field” dealing with individual client’s and families, businesses etc.
    What is perceived as appropriate to protect a client’s needs may not fit their budget. Therefore you implement a condensed version of what they may actually require.
    Are we then guilty or negligent in doing this.
    Granted there are individuals who do not always have the client’s best interest at heart, but what field of business or profession doesn’t.
    ASIC may enforce more changes, but to whose detriment.

  • Damian Eales

    I was not an A student in Maths when I was at school, but a ‘Random’ sample of 200 files is not enough to give a true picture of the advice given by the industry. Of the 200 files, how many advisers were involved? Let’s assume there are 10,000 people giving Risk Advice, that is a sample of 2 p.c. Hardly a true reflection of the quality of advice.

  • Geoff

    I’ve had enough. After 30 years, not a single complaint, almost 100% persistency over that time, it’s been nice knowing you, Financial planning. I’m lucky I’m of an age where I can leave and not one of those in their fifties who are wedded to the industry (sorry..profession) and have too much tied up in it to quit/.
    I’m proud of what I’ve achieved, and I’m sick of politicians and Public servants tarring us all with the same big black brush.

    For years the “sale” of life insurance has been frowned upon by “real” financial planners because they are supposed to be above those who sold” it.

    Thousands of new entrants were inducted into the sexy side of investing and Super in the 90s and 2000s.
    Then came the Global recession. Investing got hard! Where can we make a buck? So these thousands of advisers, virtually untrained in the value of Life insurance, became “sales” orientated about Life insurance. Banks and direct marketers joined the frenzy. The older guys began to leave. Expertise went out the door. Whatever the software said, that’s what got sold.

    Insurers out – competed each other in a race to the bottom, outpricing each other in group tenders and subsidising the cost with the premiums of ordinary buyers.

    Industry funds gave advice from call centres.

    Banks “offered” life insurance with every loan.

    Insurers backed direct marketing. “I never thought it could be so simple” says the nice lady on TV.

    Well, it isn’t simple and never was. If the jobs done properly, someone has to pay. And when it’s done by asking the client for a cheque for the hours of expertise you’ve put in – initially, at review and at claim time, guess who’ll be the only ones with good insurance – those who can afford it. Because commissions, used properly, allow ordinary folk to get advice.

    In Mr Kells case of course, one imagines the government buys his personal insurances for him. Or does he ring up during the ads and order his own. “they were so helpful”.

    So our industry, the sale of life insurances to protect families – under siege for so long, is about to be belted again. My clients are bemused about why their friend and adviser is treated so poorly. And when I explain, they’re annoyed – at the arrogance and incompetence, at why they’re never asked, at the self righteousness of the Mr Kells. And they keep their insurances until they no longer need it, when we determine that together. When I suppose that’s called a lapse”.

    30 years, CFP since 1999.

    • Peter Stathis

      Well said Geoff. Perhaps those of us with loyal, close clients could ask not only for a testimonial but if they would go that extra mile and deliver it to their Federal member in person.

  • RD

    Any chance of a review into the regulators peformance? What percentage of their files are satisfactory?

    This witch hunt that has run for 7 years seems to have one common denominator…..regulators trying to implement solutions created in thought bubbles. Maybe they are the cause of the all the problems.

  • BillB

    I need help-I am up to page 45 of 77 pages

    A few things are blindingly obvious. ASIC went into this with a pre-conceived hatred of, firstly commissions of any sort, and up-front comm in particular. For the lawyers at ASIC and elsewhere I have two words – Garfield Barwick. While on the High Court, he was notorious for knowing his decision in advance, and then seeking justification. It was blindingly obvious when you read the majority judgments of his fellow judges on the facts

    This report attacks risk advisers only. Insurers apparently are blameless, but they created the system. It must work or they wouldn’t do it – they do have shareholders. For example, how much would lapses be reduced if ALL insurers passed on all policy improvements without cost or underwriting ( product improvement is cited as a factor driving replacement ) and if insurers facilitated easy increases to sum insureds on legacy products. And insurers persist in offering TAKEOVER TERMS. No guilt there, apparently ! Not mentioned by ASIC.

    And 202 files – what a joke. Supposedly there are 8000 ARs licenced. At an average of 90 files per year, ASIC had over 500,000 files to access. The ABS wouldn’t offer an opinion on such a low sample, and neither should we.

    Now read the rules they created about which advisers they would check. No mention about whether they went to those insurers who have seen BULK business go out the door when advisers shifted AFSLs in the last 2 years. No mention of AFSL pressure or incentives on advisers

    One theme does stand out – are some AFSLs are ignoring AUDITS? Name them ASIC, please.

    ASIC attacks the concept of using super contributions ( partial rollovers ) to fund risk premiums, with some justification. That facility is now offered by most insurers, but its a recent fad. No blame for insurers there either. And what does ASIC regard as “significant ”

    Briefly, because time & space is limited, please refer to the sample on page 44. If that was my FF, I would be shot by my AFSL. Bur what did ASIC omit ? Where is the info on debts and income needs, even age and her earnings. You cannot criticize this adviser without that info being provided. Did the client exclude discussion re her husband ( often happens with modern couples) There’s no mention of the sum insured in super, and whether or not it reduced every year. ASIC seem to infer the adviser is to IGNORE best interests ( some clients are their own worst enemy ) and just find savings without seeking to leave her in a better cover position.

    Michelle”s STATED objective is ( surprise, surprise ) to reduce current personal cash flow. Experienced risk advisers look for un-stated objectives. On the evidence provided by ASIC so far, this case would be thrown out of a court.

    Finally, does any adviser have an AFSL that will pay them a fee for advice without product sale.

    Tell them their dreaming !!

  • Mark Thompson

    Point one of the Report; policy innovation and improvements in definitions are in the main not retrospective and many insurers create a new series. This makes the old policy redundant and open to replacement by the new policy or another insurer. Don’t we have a duty to offer the best insurance to clients rather than continue with a substandard policy, particularly when it comes to trauma insurance and the 2 key definitions for cancer and heart attack. I now drive a car with multiple air bags and cameras that warn me if I wander in the lane or it will slam on the brakes when a collision is imminent. Should I still be driving an older model without these features? Hey if insurers don’t pass back improvements to policies then they are creating their own mess.

  • Michael Baragwanath

    I’ve read the report, the conclusions are pretty weak. They took a few simple measures and forced them into an outcome: Ie that upfront commission equals lower quality advice… correlation is not causation. What I would like know is how much risk is written by the advisers with “fail” audits.
    My bet is that the majority of failures happen when advisers who don’t normally bother with insurance fall over a case and stuff it up.
    The data is out there ASIC, pick up the phone to NMG or Beaton and cross reference the percentage of risk written vs the failure rate and I bet you’ll find a skill/experience gap, still a correlation, but maybe, just maybe you’ll get closer to a truth. It might not be one they like though: that abhorrent amounts of complex documentation don’t make for better advice, instead they make for more expensive advice which runs contry to the departments stated aims.

    • Michael Baragwanath

      I’ll just reply to myself to clarify: paragraph 49 shows how they determined the audited advisers.
      2 large dealergroups, 3 middle tier dealergroups and the top 3 most productive advisers who are not issuing general or no advice (ie not including agrigators)

      What they have targeted though are the advisers with both the most production AND the most lapses. Ie those most likely to be significant churners.

      So we still have a problem with methodology. If you want to say the “industry” has a problem it might be a good idea to audit a broad cross section of advisers

  • Ben Trim

    Is it just me or can’t others see the problem with this review? Carried out between September 2013 and July 2014. Give the industry a fair go to respond to the requirements of the FOFA reforms. The other question I have is how did they choose the sample? Was it random or targeted at advisers they suspected of wrong doing? Tyical and what we have come to expect of ASIC and Commissioner Kell. Busting the balls of honest advisers and release of partial information to justify the jobs of all those “public” servants.
    Time for the industry to take control of it’s own future !

  • Alleycat

    @Geoff, perhaps you can educate poor old Jason on the facts of life.

    Fact 1.

    First off insurance since Eve asked Adam to take a bite out of the apple, insurance has never been bought,…… it’s been sold.

    Fact 2.

    No one likes to spend money on an intangible “such as a promise to pay…. just in case”, so selling the benefits has always been the criteria of why anyone buys insurance.

    Fact 3.

    Up front Commission has almost nothing to do with the sale because, generally most life companies offer similar amounts of up front commissions.

    Fact 4

    This is for @ Jason’s benefit.
    Life Companies will discount their initial and ongoing premiums by 30.0% for a Nil Commission product.
    Assuming the average Life Premium/ Commission is approximately $1,000, If you think you can interview a client, complete a fact find, complete a SOA and present to a client, complete an application for insurance, negotiate with underwriters and do it under 10 hours @ a charge out rate of $100 per hour for $300, then you know what, I expect that you won’t be around all that long.
    So if I understand you correctly as the self righteous one, if you are doing a simple transaction like this, you would most probably charge $1000, or perhaps only $500 for your time (fee). But even at the lower fee your client is going to pay 20.0% more to see you than me.
    How I and others would love to follow you around.

    You get more than that for selling Big Macs as a 16 year old.
    You’re opiate and not representative of what’s good about our industry /profession because your moral compass has warts on it.
    You’d be better off working for ASIC. They’ve got no idea either !!!

  • Peter

    Is it any wonder Advisers get irate at reports like this. 202 files, spread over 9 months from the larger writers of insurance cover. That’s an average of 5.1 files per week. Something that 3 large writers could do. And of these 37% or 74 files were inadequate. In other words 2 files per week were inadequate.
    Now how many large writers in Aust are there? I’ve no idea. How many of those files had been audited by Dealer Groups etc? No idea. Were the writers who failed just writers of Insurance and no other planning Advice given? No idea. The report states that the authors’ focus was simply on the advice advisers give, not the other ways people buy insurance products. In it’s conclusions it states that some problems exist with insurance manufacturers and those that design and manage distribution channels – anything said about how to fix that? No! Anything said about the other issues it raised ie those that are not within the Advisers’ control? No!

    But of course, it is all the advisers’ fault due to incentives, commissions and bad advice. Bad advice can and should be dealt with. There is no reason for it. But for God’s sake, what about the other stuff?
    My conclusion is that if ASIC DO NOT provide more info on this, then this report would be best treated with disgust. It does not appear representative of the industry and certainly could be easily classified as biased. When do they plan to deal with the other problems they identified? No idea! How convenient!
    I wasn’t included in the trial, but could have been as I have just churned a client’s IP whose premium at age 55 had reached $487/mth and was unaffordable. It’s now $336/mth and will get higher. Our goal is to get him into a position where he doesn’t need it anymore. But I churned! Would have been a statistic as churning is a problem. Give me a break!