The Association of Financial Advisers (AFA) has criticised the low level of consumer and adviser commitments in the Financial Services Council (FSC) draft Life Insurer Code of Practice stating it would do little to change sales practices that work against consumers.
The AFA stated the current commitments to consumers in the Code were insufficient to drive cultural change and any commitment to the role and place of life insurance advice had been ignored, and called for substantial improvements even if that meant delaying its start date from 1 October.
“Restricting the Code to setting out best practice standards for insurers in relation to underwriting and claims management does not go far enough in addressing the cultural issues and sales practices that work against consumer interests,” AFA Chief Executive, Brad Fox said.
“A fully prepared Code would represent a catalyst to form a new culture within insurers…”
“The Code needs to also impact the organisational behaviours that unreasonably conflict an adviser in their Best Interests Duty and induce inappropriate replacement advice. This means the Code must contain commitments to advice professionals as well as to consumers,” Fox added.
He said these commitments were important as approximately half of life insurance in Australia was arranged through financial advisers.
The comments from the Association are part of its own submission to the FSC, which made 29 recommendations on possible improvements, and which included six pages of comments drawn directly from AFA members.
While the development of the Code is a requirement of the package of reforms contained in the Life Insurance Framework (LIF) Fox said the current draft will not restore the social licence lost by insurers following recent media coverage on claims related issues.
“A fully prepared Code would represent a catalyst to form a new culture within insurers; one that positions consumer health and wellbeing alongside sustainable financial performance and therefore restores the social licence granted to life insurers to protect Australian families when they are at their most vulnerable,” Fox said.
“It should drive an insurer culture of seeking genuine new business and as such help address Australia’s underinsurance problem, rather than perpetuating an insurer culture which tries to attract existing policy holders away from other insurers,” Fox added.
“It is not good enough to simply say this Code is a step in the right direction and can be further improved later…”
“It is not good enough to simply say this Code is a step in the right direction and can be further improved later through future reviews because in fact, as it currently stands, it falls too far short.”
The comments from the AFA echo similar concerns from consumer advocacy group – the Financial Rights Legal Centre – which has stated the Code is a ‘good first effort’ on two occasions but still needed to exceed the law and provide greater consumer protections.
The AFA also raised the issue of commitments to advisers when the Code was first open to public comment, stating at the time it would be seeking assurances that life insurance sales staff were properly educated around Best Interest Duty, and that life insurers would share lapse data with licensees and professional associations to give a clearer picture on that issue.
Well done to the AFA for their continued pursuit of client interests by pushing back on an underdone Life Code. The FSC and it’s member institutions have got some more work to do. The AFA continues to advocate that they do this in client interest and ultimately in reducing our chronic underinsurance problem.
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