Life insurance advice, particularly the unnecessary switching of insurance products, will be under the close scrutiny of the Australian Securities and Investments Commission (ASIC), the regulator has warned.
Addressing the audience at this year’s Association of Financial Advisers (AFA) National Conference, ASIC Commissioner, Peter Kell, said one of the emerging compliance issues that the regulator is observing is the practice of inappropriate switching out of life insurance policies. He said it was of particular interest to the regulator given the fact that commissions on life insurance are excluded from the ban on conflicted remuneration under the Future of Financial Advice (FoFA) reforms.
“In the course of recent ASIC investigations and surveillance work we have seen some inappropriate switching out of life insurance policies, resulting in detriment to consumers,” he said.
The Commissioner went on to say that in some cases this process has resulted in “some pretty poor outcomes”, including clients paying more for the same cover, inferior policy terms and excluded health conditions.
According to Mr Kell, once the FoFA reforms work had been bedded-down, the regulator would be paying close attention to life insurance advice.
“Given that commissions on life insurance are not included in the ban on commissions under FoFA, we want to make sure that people address any conflicts of interests with their clients.”
Speaking to riskinfo after his presentation, Mr Kell explained that life insurance advice was frequently reviewed by ASIC during surveillance activities because it is one of the key products that advisers deal with.
He confirmed that the examples of switching recently observed by ASIC were not one-offs, and appeared to be a regular practice within some firms.
As a result, Mr Kell said the regulator was watching the current debate around the Financial Services Council’s proposed insurance replacement business framework closely.
“That’s ultimately an industry led proposal, but we’re keen to understand how that plays out and whether it will ultimately improve practices in the industry, thereby helping to remove some of the incentives that might be there for churning or inappropriate switching,” he said.
“Ultimately it would be great from ASIC’s perspective if that (the FSC’s policy) improved practices in the area. However, it could well lead to a situation where we wanted to take a greater focus on the area ourselves if we had concerns that it (the policy) was a missed opportunity to deal with the problem of inappropriate switching,” he warned.
