LIAWG Failed to Deliver on Terms of Reference – AFA

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AFA CEO Brad Fox has expressed his disappointment that the Life Insurance and Advice Working Group failed to deliver on its original Terms of Reference.

AFA CEO, Brad Fox
AFA CEO, Brad Fox

Mr Fox said the AFA agreed to participate in the LIAWG in the hope the industry could work together to improve the quality of life insurance advice. But he believes the Working Group did not deliver on the original Terms of Reference agreed at the commencement of the process, and that the Trowbridge Report recommendations are “unworkable”.

Convened in October 2014, mainly in response to ASIC’s damning Review of Retail Life Insurance Advice, the LIAWG was a joint initiative of the AFA and the Financial Services Council. Announcing the program, then FSC CEO, John Brogden, said: The financial advice and life insurance sectors will work together to carefully examine the findings and recommendations in the ASIC report and to assess all options to improve market practices and sustainability.”

The original LIAWG Terms of Reference stated:

1 Objectives

The LIAWG will review ASIC’s report and make recommendations on how the industry can respond to the issues identified to ensure that Australians are adequately insured and receive world class financial advice.

2 Scope

The LIAWG will consider all options in its response including those which will be industry led and those which will require regulatory assistance.

The LIAWG will:

  • Provide a unified response to the identified issues;
  • Address the three key issues arising from the report:

1. remuneration structures;

2. product design issues; and

3. quality of advice.

2.1 The LIAWG will provide specific analysis on the options and recommendations for industry change, including transitional paths.

3 Timing

3.1 The Working Group will provide an interim report by 15 December 2014 and will report in early 2015.

4 Consultation

4.1 The Working Group will consult with key industry stakeholders, consumer groups, regulators and the Parliament.

5 Support

5.1 The Working Group will be supported by a Secretariat within the associations.

5.2 Membership The LIAWG will have an independent chair, and will include a mix of advice, practitioner, and insurance representatives drawn from the founding industry organisations, the AFA and the FSC.

By December 2014, when the LIAWG Interim Report was released, a strong emphasis was placed on the fact that the Interim Report and subsequent Final Report (eventually published in March 2015) would be the “independent recommendations” of LIAWG Independent Chairman, John Trowbridge.

The FSC has also confirmed that the industry submissions made in response to the Interim Report were made available to its Chairman, but not to the other members of the LIAWG.

According to Mr Fox, the remuneration model proposed in the Trowbridge Report does not acknowledge the value life insurance advisers provide to consumers.

The proposals put forward are based on unsupported assumptions and inadequate research

“For this market to be sustainable and for consumers to continue to access quality advice there must be a sensible balance between the interests of all parties,” he said. “The proposals put forward are based on unsupported assumptions and inadequate research. There has been no independent assessment of the potential implications on consumers, financial advisers and licensees.”

He argued that instead of focusing on adviser remuneration, the report should have looked to other levers to improve the quality of advice, such as training and education, codes of conduct and strategic life insurance advice.

Mr Fox also called on Australia’s insurers to publicly release their submissions to Mr Trowbridge

“With the FSC submission to Trowbridge calling for such a significant change to adviser remuneration, the time has come to ensure that the life insurers are transparent about their case for this significant change,” said Mr Fox, who also said insurers should release modelling of the impact of the Trowbridge remuneration recommendations on consumers, advisers, licensees and life insurers. “We have released our submission and call on all other stakeholders to do the same,” said Mr Fox.



15 COMMENTS

  1. If anything is obvious in this , it is that the old ( life industry ) adage “Never Trust Management” is as true now as it was 30 ,40,50 years ago.

    • I’ve spoken with a reliable source who advises me that there were essentially 2 groups on the FSC side. AIA, TAL, Zurich, ClearView on one side and AMP, Suncorp, MLC, Comminsure and to a lesser extent ANZ, BT on the other. No guessing what the last grouping was batting for.

      On a related front, I’ve tried to obtain the Submission from one of the insurers on the first grouping side but for some reason they do not want to make it public but are willing to show it to me but not to keep a copy. Although I can accept that they will show it to me, the fact that it won’t be able to be critiqued raises questions about the first grouping as well (with the exception of ClearView).

      May I suggest that all pressure the groups to ensure that their respective submissions are made public. As for some in the 2nd group, no wonder they would want to keep it to themselves they wouldn’t want to put the non aligned advisers off side

  2. There is another elephant in the room which this report didn’t address but needs addressing is the manner which life insurance companies do their underwriting. Most financial advisers use life insurance companies that underwrite their policies at inception (hence the high commission to pay for the extra work the advisers have to do to get the policy accepted), whereas most industry funds and some others do the underwriting at the time of the claim where they can deny the claim or make nearly impossible or very difficult to pay. Quite simply underwriting at claim should be banned. And let people get what they agreed to buy.

  3. Well said Mr Fox. Keep the pressure on the insurers to get to an outcome that recognises the value in all levels of the advice chain. I agree about transparency. There really is no where to hide for the insurers now, should they want to maintain trust with the advice community.

  4. Any recommendations made that relate to matters outside the specific terms of reference should be disregarded, at best. From my reading relating to other government inquiries that is usually the case. The fact that the chair has allowed this to happen at all, however, discredits the entire report in my opinion. Imagine if an inquiry into the union movement stepped outside of its terms of reference – it would be howled down immediately.

  5. I’d like far more transparency surrounding the files that were reviewed.
    1. Were the files written pre FOFA or Post and were they subject to the oppropriate rules at that time?

    2. What information did the life coys provide to establish lapse rates? I don’t know about anyone else but I know my clients circumstances change to the point where they can no longer afford the policy and either cancel completely or reduced costs. No one can tell me with any level of confidence whether or not theses circumstances are treated as lapses or not. I suspect they are because that’s how Life Coys roll. If this is the case then the ASIC 413 report is rubbish and again we find the Advice Chanel subjected to fabricated evidence.
    3. If a student doing their Thesis provided a sample size and group like the one ASIC used I’ll put my money on that student receiving an epic fail.
    4. It would also be interesting to study the lapse rates knowing that most lives implement insurance in their mid to late 30’s and at that age it doesn’t take too long before the more favourably short term stepped premiums start to jump. This combined with the sluggish economy and lack of confidence over the last 3-3 years could also have spiked lapse rates. All this has nothing to to with churning or high up front commish.

    This whole thing is farcical.

    Comeon Aussie…where’s the fair go?

  6. I’ve asked 10 of the retail insurers to allow me to read their Trowbridge Submission. So far, AIA, BT, Zurich, OnePath and Clearview have refused. They have all provided commentary on their submission, but we know how different the FSC’s media release on their submission was from the actual content of their submission.

    I congratulate TAL as the only insurer who has so far made their submission available to me to read. I take this willingness to be transparent as a great indicator of their integrity – unlike the others, their actions support their assertions that they value insurance advisers,

  7. In My Opinion……

    The ASIC report tabled in October is a ‘Red Herring” The Life insurers are not making any money due to the current remuneration structures that are in place. The life insurers are putting pressure on the government to fix this. How do they do that? Conduct a review of known Churners in the industry, provide an audited report of 200 files with the outcome being that ALL advisers are unethical money grabbing b***** and the industry needs to change.

    What concerns me is not knowing what the true hidden agenda is in all this, Do they want to rid advisers from the market all together?

    I agree with Simon and from my understanding that the processes around getting clients on board in the direct and industry fund space is so misleading that all this will do is block the legal system with claims. In all the advertising that you see on TV I have not heard the fact that when you make a claim we will see what medical conditions or injuries you had at application time and we will decide then, if we are going to pay the claim.

    The Insurance companies and there BDM’s are sitting on both sides of the fence, but they better be careful as one day their leg might get caught getting back over and they could get a huge splinter upo their a#@*….. On one side of the fence they are sitting there giggling like a little school girl because of the reduction in dollars they will have to pay the advisers (on that note there has been no confirmation that the insurers will be reducing their premiums) and on the other side of the fence the Insurers BDM’s are sitting their trying to show some empathy to advisers….. It makes me sick!!

    I also agree with Brad Fox that the Life insurers should be transparent and release their submissions that were tabled in front of Trowbridge, but hang on the Life insurers probably have a couple of versions and as Trowbridge was the only one who saw them, well who knows what will be in it and released if ever that came about.

    Ah well………back to it!

    • You have uncovered the truth Conspiracy Theorist- when the GFC didn’t wipe out advisers (They turned to risk to survive) the Industry Funds (TRade Unions) decided to wage a war on risk advisers as well.
      ASIC is just continuing in its orders from Gillard and Kev, time to examine the industry funds and the payments that come out of them. Provide some true transparency.
      Where’s the Corruption investigators now?

  8. I think this whole thing goes back to before licensing., the life companies wanted to get out of field room costs, and quietly pushed for licencing in the back ground. BUT it back fiered, they suddenly found them selves paying commission on every policy ever written by anyonea t any company . If you were an independent in those days and didn’t write enough they would cut you off. Now they had to pay all those cases. ADDED about 30% to my income.
    About that time the banks were making moves, life cover across the counter etc. The industry was screaming about it , the banks were getting criticised– one came out and made a statement -they would take the industry over. There was a rule change about exporting profits to overseas owners (I think) a lot of Australian branches of life companies became saleable. Look at who comm. and NAB OWN!
    After licensing the companies found them- selves in a competition war without a field staff to rely on.
    Improve the product simples but everyone did it .We had a FUDICIARY DUTY (remember that ) .So we looked for the best product and it has been like that ever since. Then 2008
    HAPPENED planners income dropped away, commission was a big part of most of their businesses then. They wanted to sell life ins. some made mistales.I know of one in the ninties who repaced an income policy and cancelled before getting the new one through . It DID NOT HAPPEN.
    The life offices are sick of it, the first experiment did not work It has cost them money, they think they are big enough not to need us and can survive with online where they will have a lot more control AND THE PUBLIC AND THE COUNTRY WILL BE THE WORSE FOR IT.
    The planners and the fund managers will carry on but where will the life advisor be? wHAT HAPPENS TO THE SUCCESSION PLANNING GUY . WILLTHERE EVEN BE PRODUCT?
    sO MUCH LIFE COVER IS BEING CRAMMED THROUGH SUPER.
    wHAT HAPPENS WHEN THE PREMIUM OUT WEIGH THE CONTRIBUTIONS CAP?
    and so it goes on. What ever happens it will not be what we are used to now!

  9. By effectively breaching the Terms Of Reference to govern the LIAWG by not delivering a unified response as required and the FSC allowing information in the form of the industry submissions received in response to the Interim Report being made exclusively available to John Trowbridge ONLY, it renders the whole process unacceptable and redundant.
    Terms of Reference are the governing objectives by which the organisation must adhere and if those are breached or if there is speculation or evidence the terms were compromised, it must be taken the committee or working group’s results or recommendations cannot be relied upon.
    How could it possibly be that the FSC provided information to John Trowbridge only whilst other members of the working group did not receive the same information which was to be utilised as considered evidence toward the formation of the final report ?
    What information was contained within the industry submissions the FSC provided to John Trowbridge and did not provide to the other members of the LIAWG ?
    The Trowbridge Report does not and cannot reflect a unified response to issues that were to be addressed as there is now clear evidence of disunity within members of the LIAWG following the report’s release that obviously existed during the process.
    Despite John Trowbridge’s recent attempts to explain his report and the process, this report should now be considered flawed, not because of John Trowbridge’s efforts, but because it appears it does not represent what the Terms of Reference were created to achieve.

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