The Senate Economics Committee (SEC) reviewing the Life Insurance Framework (LIF) legislation has recommended the Senate pass the bill as it stands.
The SEC made only one recommendation in its report stating “The committee recommends the bill be passed”, effectively removing the last barrier to the Senate doing so and progressing the passage of the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 to the stage where it receives royal assent.
“The committee recommends the bill be passed”
In making this recommendation the SEC stated it was “…of the view that the bill contains provisions designed to ensure that consumers can access unbiased and appropriate advice when considering purchasing life insurance”.
It also presented a harsh view of the past actions of advisers stating they “…have thus far been allowed to provide advice in circumstances where their own interest in a significant commission is at odds with the interests of the consumer”.
While the report highlighted concerns within some submissions about a reduced advised life insurance market, the SEC stated the bill contained mechanisms to address those risks.
“In particular, the powers conferred on ASIC ensure flexibility and responsiveness while the scheduled 2018 review provides an opportunity to correct any imbalances or pursue further reform,” the report stated.
“…the scheduled 2018 review provides an opportunity to correct any imbalances or pursue further reform”
The statements came at the end of the report, the majority of which summarised the issues raised by those who made submissions to the committee during the limited consultation period.
While the committee received 265 submissions in total, 209 of those were received on form letters sent out by the Life Insurance Consumer Group with a further 56 submissions from advisers, licensees, industry associations and consumer groups.
The two Labor members of the six-member SEC – Senator Chris Ketter and Senator Sam Dastyari – stated they welcomed the SEC report and the reform the bill would achieve.
However, the two senators made additional comments in the report stating they noted concerns in the submissions that not all stakeholders were consulted in the creation of the new framework and the reform would negatively impact consumer choice but increase the cost of life insurance while decreasing adviser numbers as the market share of large institutions increased.
In these additional comments, Ketter stated the concerns about the activities of large institutions were legitimate and Labor acknowledged the risk that these institutions may come to dominate the life insurance industry.
He also pointed to previous Senate reviews into financial services and the recent CommInsure media coverage as example of these concerns stating the current inquiry into the life insurance advice industry by the Senate Economics References Committee was “both timely and most welcome”.
What this legislation is as yet silent on is the definition of the “prescribed circumstances” under which a lapse will not be a lapse for write back purposes. Last week’s events highlighted how adverse it can be if an institution is placed in a poor light, followed by clients insisting on moving their policies, followed by what: that institution then writing back adviser commission on those policies moved as a result of alleged actions by that institution? This scenario MUST be addressed in the ensuing regulations. That’s the first issue. The second issue is how ASICs review in 2018 is going to be remotely meaningful without past metrics on number of ‘new’ policies put on the books versus replacements of existing policies, compared with the same metrics kept for the imminent first 2 years under the new regime. Without insurers noting and compiling these precise statistics ( and they know them – the question is on every application form), there is no true measure of whatever difference this is making. There is also therefore no true measure of whether we have improved consumer ‘new’ engagement with life insurance-based advice. These stats should be available – should have been for decades (since the Trade Practices Enquiry’s concerns way back in 1991!) but no insurer has ever recorded replacements versus new new business in the door. That’s like Woolworths not knowing what’s selling and not selling – would be unthinkable not to know your customers and your business but that’s where our industry metrics are – in the dark ages.
Well said Sue. I share your concerns. How will ASIC complete a meaningful review of LIF outcomes BEFORE the timetable for these (LIF) reforms has even finished. The cynic in me cant help but form the view that the final destination for insurance remuneration will be in line with the recommendations of the (Murray) FInancial System Inquiry which i can only guess is what the stakeholders want.
When it was first proposed to go to the senate committee the life insurance consumer group asked everyone to contact their members they provided all the necessary info and addresses and I for one made comment that EVERYONE was needed to respond if this was to have any effect Out of 2000’advisers who contacted the life consumer group only 209 bothered to act Well ! Who do we blame for it being passed and so quickly ( which is another concern ! ) I will tell you all of those who left it to the 209 That number of objections was nothing but a bump in the road
What the real concern now is is the removal of commissions all together in 3 years time Don’t kid yourselves it will happen unless our Associstions AFA AND FPA start to act now and gather information independently on the way these changes effect the consumer and adviser yes us to ! then there very existence is limited as well no members equals no association .This has never been about the consumer it has been about profit and greed by the big institutions and removal of competition and overheads ( commissions Without advice we know how people react ! take the cheapest and worry about it if we have to claim The solicitors must be the happiest group in the country pondering the cases they are going to get to attend to now To those of you who are now contemplating selling up or retiring good luck and best wishes
I don’t have that luxury or I would join you
I was one of those 209 Ken and busted my hump for the cause. Sadly it appears the majority may have just accepted whatever was handed down…
That’s the ugly truth ! That good old Australian attitude “she’l be right” let someone else worry about it is exactly what has happened !
And still nowhere do we see what the significant consumer benefits will be, or indeed any consumer benefit for that matter. Nor do we see what mechanism translates reduced adviser remuneration into something the insurer has to provide. Of course we have many examples in the media over the past few years of just how much our institutions care about consumers. Associations, perhaps you should have at least taken care of consumers before you agreed to sell insurance specialists out.
@ Sue Laing,
They don’t care, this is not about what constitutes a lapse and what doesn’t.
The Life companies via the FSC and ASIC needed a means and used perceived so called “churning as the pretext for this to be enacted.
Did you hear even one Life Company come out and say that we will not accept business from any adviser who we believe has recycled a client to us for his own personal gain and definitely not in the client interest.
Did you hear one Life company say, we know who our “churners” are and we will notify, their Licensees, ASIC and the company who accepted the business that used to on our books.
Did you hear one Life company take the step to say that we will reduce commissions on all new business as of today without the intervention of government because it’s unprofitable not to do so.
As you correctly said there are a myriad of reasons why insurance policies don’t continue, not withstanding the lack of morality of many of those Life companies who have increased their premiums by 85.0% in 1 year in one case, 53.0% over 2 years in another to get rid of legacy clients, 30.0% by another in 1 year because the contracts were cheaper from a company they took over than their own.
And of course the obvious one … finding a way not to pay or hold up legitimate claims.
Anyone of these is a deal breaker for a client.
In light of the recent comminsure issues and large premium increases by most insurers, if you had written some business with them under the new 2 year responsibility and a client insisted they were moved as a result of the bad publicity or large premium increase. We would then receive a clawback through no fault of our own? Time to boycott writing business for bank aligned insureres and focus on some white label life and tpd and remove the most profitable policies from them
Mark see my comments below – exactly the writeback issue I have already raised. Who knows? is the current answer, as the regulations have not been written. It is intended that writebacks be averted in certain logical cases but these have not been described yet and we wonder how the regulators can possibly determine what these should be without reference to the industry – so hopefully all stakeholders will be given a chance to contribute. But then again…there goes a pink one with spots, flying high…
I witnessed a classic example a few weeks ago: a multi-life policy for a couple; husband died and wife chose not to continue the remaining cover on her life, as she wrote to say she was moving in with her daughter (probably paying off the daughter’s mortgage or something like that with the life proceeds); had sold their house and didn’t need the remaining cover for the mortgage any more. In that scenario the whole policy lapsed as it only had one policy number and although the real cause of the lapse was the death of an insured and subsequent paid claim, this would be on the books as an ordinary discontinuing policy. But it had done its job and was reasonably cancelled. Not an ounce of ‘fault’ on the adviser’s part. So many examples only advisers could understand and explain.
I think so many risk writers share your sentiments Sue. Advisers’ concerns have been ignored throughout this entire process, which in itself is incomprehensible, so why would industry be consulted now?
Is there any way out of this convoluted mess?
Is the LICG still on the scene and are they still able to make a difference?
Just further to my last comment – ASIC’s Peter Kell tweets “too much finger pointing in the life insurance sector. Industry must work together to address current issues.”
Is there any way someone can help him to understand that advisers have been TRYING to work with industry stakeholders throughout this entire process, but the adviser has been largely INGORED! That’s why we have the LICG.
thanks sue, I know many advisers are now looking at their aligned dealer groups, banks & insurance co’s and really questioning why they would be staying with them. I think for some advisers like myself who have sufficient trail the option could be to treat the business as an annuity.
Grows at about 15+% a year with cpi and stepped increases or even more with premium hikes and no compliance issues, SOA’s associated with writing new business.
The institutions can afford to salary new advisers and take a loss on risk writing hoping to pick up other lines of business like debt etc? I believe anyone with a entrepreneurial bone in their body would be questioning staying in this industry
@Mark,
Two issues that you raised, the first one is that you will be expected to review your existing client base covers and this will involve a review SOA even if you change nothing.
So that cost was supposed to be picked up by your trail renewal commission.
Of course this would under normal circumstances also include the cost of your involvement in a claim.
The rocket scientists who think they’ll get away with charging a fee instead of receiving commission for this even if you change nothing, gives credence to comment, “tell them their dreaming”.
The second issue is that not all life companies are owned by a bank and because one put up their Group Life rates by 85.0% last year. Another xyZ company put up their rates by 20.5% if you add in the normal rate for age increase on existing clients and then replaced their top of the line IP contract with an inferior worded one by comparison for all new clients.
It seems to me that none want to do business with the multi independently owned adviser any more, the direct route seems to be their preferred option. Low cost, low maintenance, and fewer claims as a result of inferior products to the unsuspecting and uneducated public.
Finally how are you going to deal with referrals from existing Centre’s of Influence ?
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