The Life Insurance Framework (LIF) remuneration changes should have been submitted to the ACCC to measure their industry and consumer impact, according to the head of a life insurance broker, who has claimed ASIC and members of Parliament are not equipped to assess the effects of the changes.
The comments were made by Rate Detective Chief Executive, Damon Rasheed as part of a submission to the Parliamentary Joint Committee (PJC) Inquiry into Life Insurance. In the submission, he claimed the LIF changes were guided by the Financial Services Council (FSC) and its life insurance members, which decided on their make-up in consultation with other parties.
“It is not appropriate for competitors to sit around a table and discuss price, or elements that impact price, without authorization from the ACCC,” Rasheed said.
Rasheed, writing before the LIF legislation passed through Parliament last week, called for the PJC to refer LIF to the ACCC as it was the only body equipped to impartially assess the impact of the legislation.
“We submit that any reforms should be first authorised by the ACCC as they are the organisation most equipped to decide on the merits of a reform package with the end consumer in mind and will not be swayed by vested interest groups and politics,” he said.
“It is not appropriate for competitors to sit around a table and discuss price…”
Churn concern
Rasheed also called on the PJC to re-examine the claim that adviser related churn had increased and claimed that no report from ASIC, or any part of the life insurance industry, had identified if churn was always against the interest of consumers.
He said this lack of information, combined with the irregularities in the way life insurers were reporting lapses had been incorrectly used by ASIC to justify policy reforms.
“We note that the ASIC report into the industry made no distinction between “good churn” (in the best interest of clients) and “bad churn” (not in the best interest of clients). There is no evidence to suggest that the slightly increased churn rate is due to “bad churn”,” Rasheed said.
“It would appear that ASIC has taken the headline lapse rate figures reported to them by insurance companies as the basis for policy reform. A more in-depth understanding of how those figures are calculated, on a per company basis, may reveal that lapse rates, in real terms, have not been increasing,” he added.
Well said Damon. Unfortunately it has all been said before and fallen on deaf ears. Has the horse already bolted? Hopefully the ACCC still have some power to intervene.
Folks, you’re wasting your time.
The Minister responsible for the LIF legislation is incompetent and ignorant of the real issues raised by Damon and others and hasn’t let the reality and the impact of her decision to push through this legislation will have on many small businesses.
A strange view from the Minister for small business who is doing her best to destroy many in this space. From a left leaning Liberal government, we all shouldn’t be surprised ….they simply don’t care about their electorate.
This is” Commercial Socialism” and should be embossed on the left leaning Liberal Party website as their manifesto !!
If you need any more convincing, you would expect my local Federal Member (who lives in my street) and is on the PJC would be keen to stand up for his constituents.
Guess again !!
At a meeting late last year when the case for amendment to the LIF legislation was put to him, his only answer was for those present should lobby every member on the PJC if we wanted changes.
Someone please tell me,… what in the hell is his job as the local Federal Member ?
A weak insipid, spineless response to a problem that is so gutless,….it’s unAustralian !!
Can anybody think that he represents anyone, other than his own self interest.
Why would you vote for any of these fleas.
I would have thought that the Federal Government, regulating a private sector
Industry by dictating how much revenues private sector parties can earn, was
against our free enterprise Western democratic system and to then regulate that self
employed Business people have to repay Gross revenues for up to 2 years after
the work has been performed, is actually unconstitutional and in some
circumstances, criminal.
If the cost to attain new business, provide all the best Interest Duties and do
most of the work for the Life Insurance Companies, is $3,000 and the revenue
was $3,300, the practice has made $300 or 10% profit after expenses.
If 12 months later the Insurer increases the clients premium by 18% and the client
cancels, was it the advisers fault? No, yet the advisers practice who only made
$300 profit, now has to repay 11 times what was actually received after
expenses, that cannot be recouped.
Churn has never been proven and clearly the stated purpose of LIF was to
improve outcomes for consumers, which of course, these changes clearly do
nothing, except increase profits for Life Companies with NIL responsibility put
back onto them for their actions.
The Competition and Consumer Amendment (Misuse of Market Power) Bill 2016:
Section 46:
(1) A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or is likely to have the effect, of substantially lessening competition in:
(a) that market; or
(b) any other market in which that corporation, or a body corporate that is related to that corporation:
(i)supplies goods or services, or is likely to supply goods or services;or
(ii)supplies goods or services, or is likely to supply goods or services, indirectly through one or more other persons; or
(c) any other market in which that corporation, or a body corporate that is related to that corporation:
(i) acquires goods or services, or is likely to acquire goods or services; or
(ii)acquires goods or services, or is likely to acquire goods or services, indirectly through one or more persons.
The Financial Services Council’s Life Insurance members all have direct insurance businesses that compete against the IFA market in the distribution of their product.
The FSC originally proposed a maximum of 20% commission, but openly announced a preference for nil commission on advised life insurance product.
The FSC Life Insurance members supply goods and services (Life Insurance policies) both directly and indirectly through advisers and they acquire goods and services (ie. life insurance policies) through both direct and indirect or advised channels.
To have the FSC Life Insurance members negotiating and proposing the outcome of the LIF is conflicted in the extreme and the Misuse of Market Power and the Effects Test needs to be applied.
Not only that, the ACCC state that “a cartel exists when businesses agree to act together instead of competing with each other. This agreement is designed to drive up profits of cartel members while maintaining the illusion of competition.”
It is a simple recipe: Drive down the remuneration base of a distribution competitor to allow a more cost effective distribution model for your own manufactured product, resulting in increased profits.
The Life Insurance companies have substantial market power as they manufacture product and control the implementation of that product.
When the Life Insurance companies are both product manufacturer and distributor of their own product, there is inherently a desire to distribute product at the least cost possible and to eliminate or reduce more expensive distribution models.
The consumer outcome has never been considered. It is simply used as a distraction and a political piece to appear as though the proposed strategy will benefit the end user.
This is why the ACCC must independently assess the process that has occurred.
No one on either side of the political divide cares about small business or the general public beyond getting themselves elected at the next election.
They are in for a rude shock.
To my recollection Damon first
published this matter in an article in Risk Info at least six months ago. Then
it appeared to die a quick death. What should have happened is that this
document should have been put before the Senate enquiry and the ACCC should
have been asked at that time for an opinion. The AFA did not want to know about
it when I directed enquiries to the CEO, saying we’d all moved on.
Sadly it’s all too late, the LIF
amendments have been passed, waived through by politicians who made enough
soothing noises to complaining constituent advisers from their electorates.
Minister O’Dwyer, and ASIC, both of whom would like to kill off IFA advisers
for different reasons , did not have any pressure applied to them about the
obvious faults in the “churning” arguments.
Now after the event, we finally seek
to have ACCC challenge newly passed legislation. Good luck with that. The ACCC
was neutered by changes to legislation favouring the big end of town introduced
by John Howard, and since then, like most small government agencies, the ACCC has
had its resources depleted.
Well Said Damon. And lets not forget that at the same time the FSC members were meeting to set a cartel level of remuneration all of a sudden they all started to increase IP premiums at similar levels at the same time.
And why were the AFA and FPA not arguing this FSC cartel behaviour with the ACCC?
Very simple. Neither the FSC, ASIC, AFA or the FPA has the independent adviser or clients in their best interests.
ASIC were happy to report incorrect data to gain extra funding. They got it.
The AFA and FPA were happy to go along with it as long as they got compulsory membership and funding from the big end of town. They got it.
The FSC were happy to report incorrect data and act as an illegal carter to increase profits and get rid of competition. They got it.
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