FSC Insurance Proposal to Govt Within Weeks

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The Financial Services Council will prepare its own response to the Trowbridge Report, to be submitted to the Government within the next few weeks, FSC CEO, Sally Loane, has confirmed.

FSC CEO, Sally Loane
FSC CEO, Sally Loane

Ms Loane said the Council would provide the Assistant Treasurer with a formal response to the recommendations put forward in the Trowbridge Report, which was released last month. She confirmed that this would be the view of the FSC alone, and not that of the Life Insurance and Advice Working Group (LIAWG), which she said was now disbanded.

“Our goal still is to deliver something that is useful to Government,” Ms Loane said. “The Government wants us to come up with a solution, and that’s what we’re working to.”

The comments were made during a press conference to launch the FSC’s response to the Financial System Inquiry, in which the Council included a copy of its submission to the Trowbridge Interim Report.

The FSC’s original submission to Mr Trowbridge recommended the industry move to a level commission structure, to be supplemented with an ‘optional additional first year adviser service payment’. The FSC said the payment should be calculated as a percentage of the first year premium, but capped applied on an industry-wide basis. The purpose of the additional payment, according to the FSC submission, would be to provide ‘partial, but not total, compensation to advisers for up-front costs’.

While the FSC did not recommend a specific percentage to be adopted as the industry standard level commission rate, its submission noted that the total first year remuneration (ie: the level commission and additional adviser service payment in the first year) should be ‘significantly lower’ than existing rates for hybrid commissions.

The FSC explained the reason for this position in its submission as follows:

  • ‘Any model must incorporate this design aspect in order to remove any real or perceived conflicts of interest in the retail life insurance advice process.
  • ‘In determining the appropriate quantum, reference to the impact of the payment on adviser productivity should be considered – noting a lower payment may create an incentive for advisers and manufacturers to improve their productivity.
  • ‘Individual advisers may choose not to accept the additional upfront service payment or the level commission. The premium cost to the client would be reduced where the additional first year payment or the level commissions are not charged. As always, advisers and licensees are always at liberty to use a fee for service model.
  • ‘Advisers would recoup the cost of advice through a fee for service payable by the client for the advice provided. Current mechanisms are in place to support this in the market.’

The FSC also noted that the implementation of any agreed remuneration model will require ACCC authorisation or legislation. ‘Full industry participation in a self-regulatory response is required for this to be feasible. If this cannot be achieved, legislating the appropriate remuneration model would be required’, the FSC said.

Speaking to the press this week, Ms Loane said the FSC’s proposal to the Assistant Treasurer would reflect the Council’s response to Mr Trowbridge’s recommendations, and that there was a chance the original view of the FSC on adviser remuneration may change. She confirmed the FSC was still talking to the Association of Financial Advisers, but that the response would reflect the position of the FSC’s life insurance members.

“We don’t want to hand a problem to Government, we want to hand a solution, as an entire industry,” Ms Loane said.

To view a copy of the FSC’s submission to the Financial System Inquiry, which includes a copy of the FSC’s submission to the Trowbridge Interim Report, click here.



6 COMMENTS

  1. Ms Loane said she does not want to hand over a problem to the Government, rather a solution.

    To come up with a solution, you first need to understand the problem.

    The FSC has never understood the complexity of the Life Industry and never will.

    That can only come with many years experiance working in all the areas of our Industry.

    I will be very surprised if the FSC comes up with a good solution, though I suppose we will just have to wait and see.

  2. So they are essentially reply to the own report!

    I wonder if Sally has ever tried to sell a life insurance policy in her life! (and the word is ‘sell’ whether she likes it or not). She’s been in the industry 5 minutes and purports to know what is best for it! What a joke.

  3. How has the ACCC not investigated the FSC for collusion?

    It doesn’t matter whether they hide behind closed doors or an ‘industry body’, the facts are simple. Representatives of businesses that are supposed to be in competition (healthy) are getting together to create the insurance equivalent of price fixing (unhealthy).

  4. Sally, may I suggest something. If you are genuine about this, get about 20 risk only advisers – and they must be risk only – have them meet for a day or whatever it may take, and ask them to come up with a solution. After all, who knows better what happens in the real world than those who actually live in the real world.

  5. “We don’t want to hand a problem to Government, we want to hand a solution, as an entire industry,” Ms Loane said.

    Sorry Sally, what you are really saying is that you want to pre-empt an ‘industry’ response by getting your conflicted 2 cents in first. You cant provide an industry response when you do not have the support of the industry – just the product suppliers – one small part of the industry.

    A whole industry response will need input from the advice bodies and the regulator and should include the obligations the government should consider for your members. Concerns such as the sales driven cultures and skewed reward systems that have created the sustainability issues the industry is now dealing with.

    It would be very fair to argue FSC decisions are driven by shareholder considerations, not the advice industry and certainly not by a desire to improve advice for consumers.

Comments are closed.