Adviser based industry associations have used a Parliamentary inquiry to raise concerns around the actions of life insurers and have called for them to be held to account in the same manner as advisers.
Responding to the call for submissions to the Parliamentary Joint Committee (PJC) Inquiry into the Life Insurance Industry, the Association of Financial Advisers (AFA), the Financial Planning Association (FPA) and the Association of Independently Owned Financial Professionals (AIOFP) each made a submission which called for changes to be made by life insurers.
As previously reported the AFA has called for underwriting to take place on all policies at time of application and that underwriting at claim time should be banned across the board.
Approved Product Lists
In its submission, the AFA also called for a ban on any insurer sales practice that could interfere with the quality of financial advice and that insurers respected the obligations of financial advisers to act only in the best interests of their client. This would also mean the removal of any incentives that may conflict with an adviser’s obligations including arrangements to use in-house product and influencing the restriction of Approved Product Lists (APLs) through reduced pricing for advisers.
The FPA was also critical of restricted APLs stating such a move was contrary to efforts to align financial advice with the best interests of consumers through the removal of remuneration structures that affected the quality of financial advice.
“There is no good reason for heavily restricted approved products lists.”
“There is no good reason for heavily restricted approved products lists. Life risk products should be competitive on the basis of their suitability to the client, and financial planners should be supported in meeting their best interest duty,” the FPA submission stated.
“Our consistent position has been that the financial system should serve the public interest, which requires the interests of financial intermediaries and end users of the system to align towards commonly-held economic, social, and political values,” the submission added.
To this end, the FPA also called for a common standard in describing product features and the use of standard definitions in product contracts and descriptions as well as standard ordering of insurance policy documentation.
Insurer Created Churn
While recognising the need to deal with adviser related churn under the Life Insurance Framework, the FPA also stated that policy changes by consumers were often driven by life insurers competing on prices, terms and conditions.
As such, further structural changes could not be gained through banning upfront commissions alone with the FPA calling on Government and industry associations to change the culture, values, and standards in the life risk sector.
The AIOFP also touched on this issue stating that competition between life insurers for sales placed advisers in positions in which they were obligated to tell clients of products with better features and lower costs.
The AIOFP claimed that advisers were being accused of impropriety if they switched clients to these better products with life insurers only complaining when advisers switched product away from them to a competitor.
“There are a minority of advisers who are genuine ‘churners’ but the companies know exactly who they are…”
“There are a minority of advisers who are genuine ‘churners’ but the companies know exactly who they are but still choose to deal with them when they are getting new business but complain when they are not on the receiving end,” the AIOFP submission stated.
“These ‘churning’ advisers should only ever be offered level commissions but the companies control this aspect not the advisers and in many cases one company is prepared to act whilst another is not,” the submission added.
Cutting Costs
Advisers received some support from the Financial Services Council (FSC) which called on the Government to introduce a product rationalisation mechanism as soon as possible, as well as consistent claims reporting and the removal of all stamp duties on life insurance.
The Council said product rationalisation had been supported by APRA in helping improve the efficiency of the life insurance sector and reducing risks from legacy products and had been recommended by the Financial System Inquiry.
In calling for the removal of stamp duty the FSC said these drove up the cost of insurance and could limit the level of cover available to some consumers, while adding to the compliance and costs of life insurers as well given the range of tax rates applied to life insurance across the various states.
The product manufacturers have a weighty responsibility in getting their internal systems right. Never in my experience in the industry has there been less support for advisers. While technology has no doubt helped, many life offices online application systems fail abysmally. Worse, we can’t get help when these do because if we call on the numbers given to us, invariably the fix-it person isn’t there. Worse still, they won’t get back to us for 24 hours or more when we need assistance right there and then!
Frustration is the name of the game. We advisers must be the most patient, long-suffering and dogged people on the planet. We ought to get paid well for what we do, because no one else would be prepared to go through what we must to get business on the books! I hope it’s going to be better in 2017.
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