Remuneration Alone Won’t Fix Insurance Woes – FPA

The problems faced by the life insurance industry will not be solved through remuneration alone, the FPA’s Dante De Gori has warned.

Mr De Gori told riskinfo that improved product design, better insurer-client engagement and greater transparency from life companies through initiatives like data-feeds were important ‘levers to pull’ to resolve the insurance industry’s issues.

“When looking at the policy pillar of ‘public interest’ we’ve considered how the industry is operating, and what impact that has on consumers, in terms of policy types, advice on insurance, and underinsurance. There’s a lot of research out there already that helps form a picture of what consumers are thinking. Consumers are generally quite sceptical about insurance companies paying claims; they don’t think they need to be insured.

“So we’re looking at this not just from the remuneration side. Obviously remuneration is fundamental to the way in which the industry functions, but we’re also looking at product design, the customer experience, the underwriting process, the issue of ongoing support – either from the adviser or the insurer – and the claims experience.”

…we don’t think the remuneration model in itself is the only lever you need to pull

Mr De Gori would not be drawn on whether the FPA had provided a submission to the joint FSC-AFA Life Insurance Advice Working Group’s Interim Report into life insurance advice, saying that the FPA was focused on developing its own insurance policy position by the end of March.

“The FPA is currently working through its policy position on risk remuneration and insurance sustainability with its Board and policy Committees and hopes to have that work finalised by the end of March,” Mr De Gori said.

“We also need to consider that the FSI has made recommendations on this issue as well, and that’s something we are committed to responding to. The Government has put a timeline on this, so that’s what we’re working towards in terms of finalising our position.” (See: Ban Upfront Commissions – FSI.)

However, Mr De Gori said the ASIC Report had highlighted that some consumers were receiving poor advice, and that the Association would be keeping an eye out for complaints in this area.

“Whether you agree or disagree with the ASIC Report, the fact is whether it’s one piece of advice or hundreds of pieces of advice that are deemed to be a ‘fail’, or even illegal, that is a concern. But we don’t think the remuneration model in itself is the only lever you need to pull to correct that,” he said.

We have taken ASIC’s checklist and expanded upon that

To tackle this, the FPA is building a guidance document for its members, setting out what constitutes ‘best practice’ for insurance advice. Mr De Gori said the basis for this guidance was the checklist contained within the ASIC report, but that the FPA aimed to take its recommendations further.

“We’ve got a Code of Conduct that is product agnostic, which sets out our rules and standards, but we do realise that the profession does need specific guidance in some ‘hot spot’ areas. This guidance document will look at putting the Code into practice when delivering insurance advice. We have taken ASIC’s checklist and expanded upon that. We thought the checklist was a great start, in terms of listing some of the areas of consideration for risk advice, but we’re taking that one step further and referring it back to our Code of Conduct and remuneration policy.”

This guidance document is expected to be released by the first half of 2015.