September 12, 2017
ASIC has claimed the level of non-compliant life insurance has not changed since the release of Report 413 in late 2014, but expects this will change after the introduction of commission caps and clawback arrangements.
The regulator made the statement as part of a recent written response to Questions on Notice from the Parliamentary Joint Committee (PJC) inquiry into life insurance.
In a response to a question on trends in life insurance, ASIC referred to Report 413 which stated that 37% of the advice reviewed failed to comply with laws relating to appropriate advice and prioritising the needs of the client. The Report also noted there was a positive correlation between high upfront commissions and poor quality of advice.
“ASIC’s recent general surveillance and enforcement work reflects similar rates of non-compliant life insurance advice to that set out in Report 413, that is, we have not seen changes in this trend,” ASIC stated in the response to the Question on Notice.
“ASIC’s recent general surveillance and enforcement work reflects similar rates of non-compliant life insurance advice…”
ASIC also stated the Future of Financial Advice (FoFA) reforms had made little difference in changing life insurance advice due to the exclusion of commissions from the FoFA reforms, but expected improvements after the start of the Life Insurance Framework in 2018.
“ASIC’s Report 413 looked at both pre-FoFA and post-FoFA life insurance advice. Although the post-FoFA advice failed in slightly fewer instances than the pre-FoFA advice, the failure rate was still significant,” ASIC stated.
“We found that the way an adviser was paid had a statistically significant bearing on the likelihood of their client receiving advice that did not comply with the law. This was the case for both personal advice given pre- and post-FoFA advice.”
“We expect the quality of advice relating to life risk insurance will improve from 1 January 2018 following the commencement of the commission caps and clawback arrangements.”
At a separate recent hearing of the PJC, as part of its oversight of the regulator, ASIC Deputy Chair Peter Kell said that ongoing data collection has indicated that churn related behaviour was likely to be very low and possibly occurring among around 50 advisers only (see: Lapse Data Suggests Churn Numbers May be Low).