AFA Calls for Review of Direct Insurance

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The Association of Financial Advisers is calling on the Government to review the impact of the direct insurance market on consumers.

AFA CEO, Brad Fox

As part of its submission to the Coalition Government’s Financial System Inquiry, to be chaired by David Murray AO, the AFA asked that the panel address a number of specific issues as part of their review.

Among these issues is the consumer impact, both positive and negative, of the emergence of a ‘very active’ direct insurance market.

Responding to a discussion about direct insurance on the AFA’s LinkedIn forum, AFA CEO, Brad Fox, said:

…we are concerned that the rise in direct insurance poses a reputational risk to the broader life insurance industry

“The AFA has this (direct) as an item on our policy agenda because we are concerned that the rise in direct insurance poses a reputational risk to the broader life insurance industry and those that advise within it (being advisers). Direct insurance has a role to play but the contrast in consumer protections in the direct space versus the advised space need addressing.”

The AFA also asked the Inquiry to review the approach to consumer awareness and financial literacy, raising concerns that the public was not being appropriately informed about legislative changes impacting their finances:

‘As an example the MySuper legislation is likely to have significant implications for a very large number of superannuation fund members, but there has been no consumer awareness campaign,’ the AFA said in its submission.

Among the other areas the AFA has recommended be considered by the Inquiry are:

  • A review of the definition of ‘personal’ and ‘general’ advice, in light of the different obligations that apply to each scenario
  • Consideration of the education standards for financial advisers
  • A review of the impact of the FoFA and MySuper legislation on the competitive landscape for the provision of financial advice
  • A review of the effectiveness of the AFSL External Dispute Resolution framework

The FSI is due to provide an interim report in the middle of this year, with a full set of findings expected by November 2014.

For more on the AFA’s concerns about direct insurance, click here.

 



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8 COMMENTS

  1. Hear! Hear! In the view of the public direct v advised? – ‘it’s all the same’. Those in the know, know that’s far from true… Yet the nation is underinsured… costing billions as people are unprepared for the unexpected. So what’s the answer? More red tape for direct providers or less red tape for scoped ‘risk only’ advice for advisers? Great that this discussion is being promoted by the AFA!

  2. I often wonder what the lapse rate percentage on direct sales has to reach before Hollard,TAL Suncorp & OPA pull the pin on that direct selling rubbish.

    Of couse the latter three still have advice networks to subsidize the losses on direct sales

    If nothing is done and the ” no cover for pre-existing conditions” timebomb goes off, as it must despite the high lapse rate, all of the dispute resolution systems under the sun will be overwhelmed.

    Thats called market failure. Then watch the welfare budget increase, Joe !

    We need a level playing field, not the current bi-polar advice system overseen by ASIC

  3. Well done Brad. It’s about time some serious scrutiny is focussed on the Direct Sellers and I include the Banks who in many cases are selling on price and not advice.

    If you give poor advice you should be hounded out of the industry, Insurance being sold direct is generally being sold on price and not on needs and objectives followed by sound advice and rationale.

    Selling on price has always been a race to the bottom, a race that you can never win.

    It is especially important that the Best Interest rules are applied in this review. Banks selling their own product and not really offering any others even though they might have one or two token other products on their APL.

  4. I’d like the FPA to bring in the question of Group Insurance – they’re flying under the radar and the potential is to ruin peoples lives as they think they have coverage – from what I have seen unless you have savvy employees pertinent questions about the coverage are not asked, and only people in the industry understand the implications of the shortcomings of Group Insurance.
    I have so many clients who are tempted by Group Cover – far less conditions on the contract the main one being “indemnity” only benefits. This doesn’t offer any security – an eg I had recently was where a mining consulting firm reduced all employees to 9 day fortnight. Immediate impact is the reduction in potential benefits – not to mention long lasting affect on partial payments at claim time etc. List of negatives is too long for this forum.
    There is no direct advice to suit the clients needs. Fortunately, for my clients that begin a new job, they know to ask me as their adviser for comparisons before making decisions.
    Why is this able to be sold without the same due diligence requirement – the potential negatives at claim time are a concern.
    Message to Brad Fox – you understand the group concepts v advice model, so please raise this issue with the regulators for the benefit of many thousands of employees.

  5. Well done AFA.
    -Direct insurance is very misleading and the public is being fooled that it’s all about price!
    -Direct insurers cheapen the advice process by pushing “call for a quote” and “it can all be done over the phone”.
    -The public has no idea about the differences between insurance policies-as eveidenced by a recent client shopping around for premiums (price) and was told by direct insurer that death with terminal illness was similar to trauma.

  6. Insurance is about delivering on a promise to the client in their time of need.

    I don’t see how a product line that has up to 40% lapse rate in the first year does that. In fact it is more likely to cause damage to that promise.

    Let alone the fine print that goes along with it.

  7. YES ONLINE INSURANCE IS LIKENED TO BUYING A TAKE AWAY AT A DRIVE IN,NOT GETTING OUT OF THE CAR AND SO TIME POOR,FOR A PRODUCT NOBODY CAN TOUCH HOW CAN YOU POSSIBLY KNOW HOW MUCH COVER AND WHAT TYPE OF COVER YOU WANT/?LEAVE IT TO THE EXPERTS,,DIRECT INSURANCE AND PROF ADVICE WHAT WOULD YOU ASK FOR?

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