In a year dominated by politics, controversy, delays and impending regulatory reform, Riskinfo has identified its three best initiatives for 2016.
Individuals, companies and other organisations are all eligible to be considered for this recognition, where the only criteria are that their initiatives have advanced the best interests of the life insurance industry in Australia for the ultimate benefit of consumers; and that Riskinfo has reported these initiatives during the course of the year.
With a view to the long-term in particular, the three best initiatives for 2016 (in no particular order) are:
- The move to minimum standard definitions for key critical illness events
- Synchron payroll tax victory
- The release of the Life Insurance Code of Practice
Minimum standard trauma definitions
In October, the Financial Services Council released a set of draft minimum standard trauma definitions for industry review and comment. These draft definitions apply to the three main trauma definitions of heart attack, stroke and cancer and were drafted, according to the FSC, ‘…as a possible solution to recent market issues.’
While yet to secure industry agreement, the FSC documented four objectives in seeking to adopt minimum standard medical definitions for these three key trauma events. They are:
- To provide standard definitions that all life insurers who are bound by the Life Insurance Code of Practice must meet as a minimum when assessing critical illness/trauma claims for the three major medical conditions that make up the majority of claims
- To ensure that the standard definitions reflect current medical tests and practices
- To educate consumers in understanding what their critical illness or trauma policy covers and improve consumer confidence in their critical illness/trauma policy
- To provide consistent labelling across products to assist with comparisons and consumer understanding
Synchron payroll tax victory
Recognition of the outcome of a legal stoush over payroll tax may not immediately come to mind as one of the best initiatives of the year. But we believe the achievement by Synchron in almost single-handedly overcoming what may have become a significant financial and administrative impost on all licensees and small advice businesses merits inclusion.
Synchron took issue with the Victorian State Revenue Office (SRO), arguing against the requirement for Synchron and by implication, other licensees, to pay around 5% payroll tax on the gross revenue of its authorised representatives, backdated seven years!
The matter had been simmering for some time, where Synchron Director, Don Trapnell said the SRO had assessed that despite being an AFSL, Synchron was still liable to pay payroll tax in relation to commissions and fees collected by the licensee on behalf of its advisers.
It would have meant a huge tax bill for licensees and had the potential to send smaller licensees broke…
Synchron argued that it was legally obliged to collect those moneys [from product manufacturers] on behalf of authorised representatives, and that obligation combined with other legal requirements to provide services such as compliance, education and training demonstrated that advisers were not employees or contractors and thus not subject to payroll tax.
“The SRO’s assessment was that authorised representatives who do not employ two or more people are considered employees or relevant contractors for payroll tax purposes,” Trapnell said, adding “It would have meant a huge tax bill for licensees and had the potential to send smaller licensees broke.”
Synchron received word at the end of May that the case would not go to trial, with the SRO eventually concluding that the arrangements between Synchron and its authorised representatives are not relevant contracts for the purposes of the applicable sections of the Payroll Tax Act.
Synchron, Director, John Prossor summed it up nicely in commenting this was “…the correct and just outcome from this matter, firstly for Synchron and for its authorised representatives, but also for the industry at large.” The non-aligned licensee took on this challenge at a significant cost to itself, but in doing so, scored a victory for all licensees and smaller advice businesses.
Life Insurance Code of Practice
The Financial Services Council’s voluntary Life Insurance Code of Practice commenced from 1 October 2016. This code was flagged as part of the FSC’s response to David Murray’s Financial System Inquiry, ASIC’s Report 413 into Retail Life Insurance Advice and the recommendations made in the controversial Trowbridge Report.
With a transition period extending to 1 July 2017, by which time all member insurance firms must comply, the Code is intended by the FSC to be the life insurance industry’s commitment to mandatory customer service standards.
In the preamble to the Code, the FSC notes its purpose is to protect the consumer by:
- Promoting high standards of service to consumers
- Providing a benchmark of consistency within the industry
- Establishing a framework for professional behaviour and responsibilities
The launch of the Code has been met with mixed reaction by industry stakeholders, including the AFA, which has called on the FSC to expand the scope of the Code to include higher levels of commitment to consumers and to include and address the role and place of life insurance advice.
Notwithstanding what are perceived by the AFA and some other stakeholders to be shortcomings within the Life Insurance Code of Practice, this is nonetheless a landmark moment in the evolution of Australia’s life insurance industry.
Two of these three top initiatives (minimum standard definitions and Life Insurance Code of Practice) have been recognised in part because they will contribute to gaining (or regaining) the public’s trust and confidence in the life insurance industry. We think the Code of Practice will continue to evolve and note the industry has yet to finalise the three key minimum standard trauma definitions. But the intent of these two initiatives will keep pushing the industry in the right direction.
Meanwhile, Synchron’s long, lonely battle and eventual victory against bureaucracy gets our nod for the effort itself, and for the positive impact it will have on the broader sector.
There were other great initiatives launched throughout the course of the year, and we note in particular:
Launch of TAL Health Sense and TAL Launches First Consumer Ad Campaign
Asteron Combines Advice Fee with Premium Costs
AMP Flags New Non-Definition Based Product
…And while it doesn’t qualify for 2016 recognition, we’ll be interested to follow reinsurer Pacific Life Re as it rolls out its UnderwriteMe service in 2017.
Gazing into our crystal ball, we see 2017 as a year that will deliver a significant array of new product and service initiatives for advisers and for the industry in general as it commences its transition to the new Life Insurance Framework reforms and towards the new minimum Professional Standards benchmarks.
