Wherever the life insurance industry lands on reforms, the package must be serious and substantial, the Australian Securities and Investments Commission has warned.
Addressing the Senate Economics Legislation Committee in Canberra last week, ASIC Deputy Chair, Peter Kell, said the regulator would need to assess any proposals put forward by the insurance industry, to ensure they address the problems, risks and issues raised in Report 413 last year.
Among the key concerns expressed by ASIC following its review of life insurance advice was the observation that the high up-front commission model is positively correlated with lower quality advice. The industry committed to take action in relation to the findings contained within Report 413, commissioning John Trowbridge to deliver an independent reform proposal, which was delivered in March this year.
Mr Kell noted that, to date, the industry had yet to put forward a final response to the reform recommendations contained within the Trowbridge Report, but said it was important for all parties that there be an outcome as soon as possible.
It was widely expected that the FSC would issue a response to the Trowbridge Report to Assistant Treasurer, Josh Frydenberg, by the end of May. Mr Kell said he had yet to see any such response, but added that he believed the industry was “getting quite close to a landing as to the elements of that reform”.
…we are not waiting for the outcomes of this process in terms of addressing misconduct in the industry
He also confirmed that ASIC was not holding off pursuing other enforcement and investigative work in the life insurance sector.
“I want to assure you that we are not waiting for the outcomes of this process in terms of addressing misconduct in the industry. It is a priority area for us,” Mr Kell said.
Specifically, Mr Kell told the Committee the regulator would be using the best interests duty and related provisions within the Future of Financial Advice (FoFA) legislation to pursue wrongdoers in the life insurance advice space:
“A key provision is the new best interests duty that came in through FoFA, requiring the adviser to act in the best interests of the client. That is particularly important, for example, when you are switching products. When you are advising someone to switch from one life insurance policy to another, it needs to be in the best interests of the client, and there is a series of tests under that. That is one of the measures in our life insurance remit.”
“It is a very high priority for us. We are very focused on it and we have cops on the beat on this issue,” ASIC Chair, Greg Medcraft, added.
Whilst I feel comfortable in myself, that I have kept the client’s best interest in the forefront when issuing replacement insurance covers, the words “we have cops on the beat” does make me feel uncomfortable.
The one thing that the insurers have seemed to forgotten is they were the ones who brought these commission structures to the table, One after the other increasing the commission we assume in light of getting the advisers business.
Now we have the same people saying that it is an unprofitable business { income protection in particular} and a minimum of 5 years is required to break even or show a small profit?.
Surely the actuaries did their “homework” when the structures were put forward. There is very little outlay by the insurers to start with and the adviser is paid with the clients premium. On top of that there is a 12 month in some cases 2 years responsabilty period and if you don’t get that far then the insurer keeps the money and you have effectively done everything for nothing ! In fact it could well be argued at a large lose of time and money to your business. Pardon my being cynical but I cannot believe that.
Once again comments about many issues not just commission without factual evidence flow out of this mess..
Lets see how far we end up in the &^$%# before someone says enough is enough.
Where are the unions when you need them LOL
If ASIC is so focussed on the best interests of the client, why do they not act with powers that they already have in their own control?
ASIC issues all AFSL’s, so why not create two different AFSL’s? You can choose to be a product provider. or an advice provider, but not both. No one should be the Authorised Representative of any product provider, otherwise they are merely a salesperson, not an adviser!
Separation of product provision and advice provision is clearly and obviously in the best interests of the consumer and will provide much, much greater protection to the consumer than anything that is proposed in the Trowbridge report!
Agree 100% that ‘Product Providers’ and ‘Advice Providers’ should be separated. As long as the two are connected consumers will rightly be dubious of the independence of Advice.
I highly doubt that Auth Reps of product providers are the culprits of the replacement embargo. No incentive to replace vs IFAs. Think about it…
… Although they will be the winners out of this mess.
but lets make sure we dont bother the direct insurers, hey Kell. They will create the greatest disaster going forward, 50% claim failure, 100% additional cost and underwrite at time of claim! What could go wrong ASIC?
Once again ASIC plays tough giy and ignores the pending “storm”, if you will excuse the pun.
Totally agree emkay, ASIC have been asleep at the wheel for years with the REAL problems out there such as we had with Storm Financial, the product providers and all the other “mis” managed agricultural schemes etc. where we have seen huge losses. It’s not the risk advisers who by and large give good advice and have saved many people from economic catastrophe due to illness and accidents.
I’m about to leave the industry and I am totally disgusted after 25 plus years to see what is going on at present without one word of all the good things that we do.
Of course there need to be some changes such as ending high up front commission and better education and training but at present it is all negativity, particularly from the media, without any reference to the positive outcomes we generate in a tough environment.
But sadly that’s one thing I can’t see changing anytime soon.
“high up-front commission model is positively correlated with lower quality advice”. Anyone know the stats of how much business is written under up-front commissions? If it’s > 80% to 90% then surely it has nothing to do with up-front but shonky risk advisers who would do the same under a hybrid or level model!?
Statistical play on fear.. At least someone picked it up
Anyone who wants to write upfronts is a fool anyway, Most smart independent Life agents (and that’s what we are) have been writing hybrid or stepped for years with the occasional level comm case when we can afford it.
We need a stable ongoing income – just like these numnut overpaid public servants receive every year. so embrace lower commissions, work out a way to charge fees (maybe to their super?) for the balance of the hours you work with a client and build up your 25% insurance servicing trails a fast as you can.
stop whining about upfronts and how much value you bring to the table – they don’t care! In case you haven’t noticed you are dealing with a pack of overpaid public servants who have no “performance KPI’s” beyond justifying their lucrative social engineering jobs.
They are career paper pushers who have never had to chase a prospect for 6 mths to find out he is basically uninsurable. They don’t get the concept of the good sales paying for all the wasted time. Just move on and build your book. It’s still the best business in the world.
If an adviser has done the right thing for the client, and most advisers always do, then there should be no problem.
My business was built on risk and level commissions, so I had nothing to worry about.
What concerns me is the tone of language used by people who have invested nothing in the business, and act like stand-over merchants or ‘cops’.
The threat itself is already implied in the tonality of the language used and I find that reprehensible.
You are presumed guilty without proof and just by association. Darth Vader is coming to get you.
An immediate apology should be forthcoming from a public servant whose salary is paid by the hard work and subsequent taxes of advisers.
I urge all advisers to read ASIC Report 413 – Review of Retail Life Insurance Advice.
In reference to the process used by ASIC to select the advisers for surveillance which formed the basis of this report – Page 15 point 49 “we asked the insurers…to tell us the three licensees or authorised representatives who had: (a) the highest number of new in force policies written in the relevant period (2012 & 2013 financial years); AND (b) the highest number of policy lapses in the relevant period”.
The 79 advisers eventually selected met the criteria set out in the report – i.e. they sold a lot of insurance and they had high lapse rates.
What an ASTOUNDING SURPRISE that ASIC found a correlation between up fronts and high lapse rates!!!! The sample of advisers selected was clearly skewed toward the result they wished to see.
Why aren’t we talking about this? Who has written to Josh Frydenberg and/or their local member? Who has written to the AFA?
@ Tony Cafarella – great suggestion
Thanks Anita I always had the feeling we were “fitted up” in the ASIC report.
I will get hold of a copy and write to Josh as he is my local member pointing out the self fulling prophecy created by the selection criteria, and the erroneous causal relationship between commission and bad advice. How will he and Tony work that into a three word slogan? Of course they will not bother. Better to get them to focus on “Choice of 13 vendors GOOD choice of one vendor the advisor’s employer BAD” Its not as catchy as stop the boats but this is financial advice reform.
Industry funds are paying millions to trade unions – advisers are simply in the way. Be it investment or Risk,
What exactly was ASIC’s brief to Trowbridge when they commissioned him?Labor put Risk advisers on the agenda under Gillard, and Kell /Medcraft are still hunting.
I think the public would be very be interested in the brief and how much his report ended up costing the taxpayer.
So ASIC now has LEO’s on the streets coming after little risk advisers who replace a clients life policy even if it put the client in a better position financially?
Next time a client says they wish for me to review their Life Insurances and premiums as the recent increases are massive, I’ll tell the to contact Asic as Peter Kell has dictated you should keep you existing policy and just pay the higher premiums your Life company has issued, because this is best for the Consumer, right?………. I might even advise them to lodge a complaint to the ombudsman because they have been locked into one insurer by the regulator.
It is really hard to believe ASIC are trying to make clients stay with the one Life Insurance company even if they can get a better price and better cover with more benefits elsewhere. Our clients are bombarded with adds on TV urging them to review their premiums and covers for Heath car home etc but for some reason life insurance is different?
I’ve had about enough of stand over tactics and threats, when we operate under the laws and best interest duties of the client everytime……………. No need to threaten the little guys, that what a bully does.
Why Doesn’t Kell go bully the Banks instead?
Spot on!
I apologize for the size of this article Mr Editor, but bare with me.
Mr Kell was like a wallaby in the spotlight at the Senate Committee. He resorted to the shibboleths of ASIC report 413, which looked at just 200 files from 79 advisers carefully nominated by nervous insurers and their dealer groups
ASIC is regulator, not a policy developer, and while it should have an opinion to Treasury ( IF ASKED ) it should not be seen to be a policy developer in public. ASIC has no brief, unlike say the Reserve Bank, to influence Government policy.
If you do not believe ASIC is exceeding its brief, compare the demeanour of fellow regulator APRA when dealing with the same banks ASIC seems to take the soft glove to.
Treasury develops financial services policy, not ASIC. Ministers accept departmental proposals ( or not ) and if the Government eventually puts legislation into force ( This Government is more susceptible to HD lobbying, at least from the banks ) the ASIC steps up to the plate. I have no issue with ASIC letting the dogs out to enforce the legislation ASIC has at its disposal
ASIC then issues any Regulations if needed and enforces the legislation. Mr Kell, like Mr Medcraft at the CPA AA event , is exceeding his authority and playing politics.
This statement is designed to hurry up the Minister. The Minister is playing a dodgy game as well, appearing to take sides in what is a decision that must be made by the life insurance market, providing the proposed commission changes pass ACCC muster.
I seriously doubt if even the most courageous Liberal Minister would be stupid enough to try and regulate the remuneration between a product manager and a licencee. That sort of market intervention is NOT in the Liberal DNA, because the moment it was announced every other commissioned driven industry would scream. This Minister is applying HIS timetable and seeking to cower us, and dress it up as consumer protection
There is no consumer benefit if overseas owned life offices, bereft of distribution unlike the banks, depart Australia reducing choice ( as per Holland ), or if life companies Number one funds collapse for want of fresh NEW underwritten business. ( Ask an actuary )
Now back to the ASIC report, which was a polemic ( google it ) ASIC clearly knew where the so called bad eggs were, but obviously chose not to reveal them until it wanted a splash. Yet apparently no heads on poles – still. There is a suspicion the timing versus the FSC machinations was not a coincidence. Maybe a few long lunches were involved. And where was ASICs criticism of the insurers, the people who create the selling environment
Mr Kell is still attacking what he sees as high Upfront Commissions, warming up the Senate Committee with his statement that the high upfront commissions positively correlate with lower quality advice ( not defined, but certainly not bad advice of the type dished out at the banks )
I have shown this Report 413 and its findings to a person with some statistics expertise and was amazed how quickly he burst out laughing at the poor result interpretation. It was said that neither association nor correlation establish causality. He quoted Wikipedia for the everyday explanation “studies which show correlation are frequently misinterpreted or misconstrued to the effect that association by itself proves something useful ”
He says “A study which looks only for correlation can only can only establish that there is correlation, NOT PROOF OF WHY THERE IS CORRELATION
He asserts that on the evidence in the report that the ASIC sampling exercise didn’t appear to be on the advice of an actuary or statistician
The sampling
• as described was not “random”
• doesn’t appear anything like a large enough sample to be reliable from 8000 plus advisers
Such an experiment and conclusion would be a FAIL in ‘Statistics 101’ and it is a concern that such a venerable organization as ASIC lends its support to bad science. The notion of announcing that there was a positive correlation between high upfront commission and bad advice bears closer ties to the questionable journalism standards demonstrated in ‘A Current Affair’ or that aired on the ‘7:30 report’ from time to time.”
We also have never been told if the offending advisers were interviewed and allowed to defend themselves or if they, OR THEIR INSUERS, have been punished. And on face value the dealers involved must be self auditing
Well here’s my tram, I’ll get out of your way
Well explained Bill
Now if only the powers that be would/ could actually read they might learn something!
As for correlations- “My dog has 4 legs therefore if it’s got 4 legs iit must be a dog “
Well said Bill. I was thinking exactly the same thing. Who would of thought that a liberal govt would mandate price controls between two parties in a private contract.
If I was a cynical adviser I would say that if the insurance market has had reduced margins it would have to do with competitiveness of the market and other external economic reasons.
With 14+ insurers all trying to get that piece of the pie they went a little hard on the projections a few years ago and thought it would rain gold. Macquarie even got in the game and everyone knows there all about the buck and go for growth markets.
It’s a stitch up! What kind of sampling method was that? Find me your worst offenders then we will review the whole industry on them.
Banks & Insurers are using ASIC as the front guy to marginalise third party channel to increase vertical integration therefore guaranteeing the status quo.
Why don’t the insurers just reduce their commission? I don’t know maybe hire an actuary.
It’s because if they act like a block they can introduce monopolistic practices (Lets just all half how much we pay at the same time and say it will reduce bad advice)
Since when did ASIC become head of Insurance profitability?
In summary
1 – Going against liberal ideology
2 – ASIC is a cop not a policy developer
3- It will probably force me out of the industry or to go work for a bank.
I’m tempted to try and get involved with AFA. I could be the voice for the angry small guy. we are not being represented enough.
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