March 27, 2018
The Parliamentary Joint Committee examining the life insurance industry has handed down a unanimous final report recommending random audits of financial advisers and the adoption of open approved products lists across the sector.
Amongst a raft of recommendations, the report called for ASIC to conduct random audits of 20 per cent of life insurance advisers over a three year period and publish any findings of misconduct on its Financial Advice Registers. Advisers that had been reviewed would also be required to publish the outcome of a review on their own website in a highly visible location.
…the report called for ASIC to conduct random audits of 20 per cent of life insurance advisers over a three year period…
Misconduct statistics for licensees and life insurers would also be published by ASIC with the Committee stating in the report that it “…endorses the view put forward by the Chairman of ASIC that creating a sufficient deterrent for misconduct in the financial services sector requires both significant penalties and a reasonable prospect of being caught”.
A further recommendation inside the retail life insurance area called for a balance of ‘affiliated and non-affiliated’ products on APLs and where “…affiliated products are recommended, the affiliation should be disclosed, and the customer should be given a comparison with non-affiliated products”.
Additionally, the committee also recommended a transition to open APLs while also calling for ASIC and APRA to jointly investigate if the past use of APLs had breached any anti-competition laws administered by the two regulators.
Alongside this recommendation the Report also called for ASIC to conduct a systematic review of all payments and benefits that pass between participants in the direct, group and retail insurance sectors with the intention of finding any regulatory gaps that should be examined further by the Government.
In making this recommendation the PJC stated rules had been introduced to ban conflicted remuneration “…however, evidence to the committee, particularly from ASIC, indicates that a plethora of hidden payments including commissions, fees, performance-related payments, soft dollar benefits, and nonfinancial benefits still exist within the various structures of the life insurance industry”.
“…evidence to the committee…indicates that a plethora of hidden payments… still exist”
Other recommendations made by the PJC in the report include:
- Regularly updated medical definitions that align with current medical knowledge and research
- Standardised medical definitions across all types of policies
- Industry standards for claim time-frames and limits on the number of medical examinations
- A mandatory and enforceable Code of Practice in relation to mental health life insurance claims
- Consumer protections for life insurance aligned with consumer protections for other financial services and products
- ASIC and APRA to audit superannuation trustees to identify any payments, including ‘soft-dollar’ benefits between life insurers and trustees related to providing group life cover
The final report does not contain any recommendations for changes to the Life Insurance Framework reforms (see: Inside the Mind of the PJC) and as stated by Senator John Williams during the initial hearings of the Committee (see: PJC Review Will Not Tackle LIF Reforms).
In the Foreword to the report, Committee Chair, Steve Irons, MP, said the PJC’s work focussed on areas where substantial changes were required to ensure the life insurance industry was held to account in the following areas:
- Consumer protections and industry codes of practice
- Transparent remuneration, commissions, payments and fees
- The provision of advice in the best interests of consumers
- Group life insurance arrangements that do not disadvantage certain groups of consumers
- Appropriate access to personal medical and genetic information
- Fair claims handling practices
Click here for a full copy of the report.