Limited approved product lists (APLs) are inconsistent with moves to increase the professionalism of advisers, and entrench conflicts of interest at the advice and licensee level, the head of a life insurer has told the PJC Inquiry into Life Insurance.
Speaking at a public hearing of the PJC held in Sydney last week, ClearView Wealth Managing Director, Simon Swanson was also critical of vertically integrated financial services providers who locked out other insurers and claimed the Financial Services Council (FSC) had done nothing to address the issue of APLs in 18 months.
Answering questions from members of the PJC, Swanson stated that forcing advisers to hold higher professional standards while restricting access to life insurance products was inconsistent and favoured those with integrated models.
He said out of the 1300 licensees in Australia the issue of limited APLs only applied to 20 groups, but they represented 44% of advisers, and APLs were restricted so that advisers could only sell the products of their licensee owner.
“We are asking advisers to be professional. We’re asking them now to have a degree qualification, to do professional development and so on,” Swanson said, adding “…they should be able to represent all the companies in the market to provide solutions that suit the needs of their customers.”
“The analogy I draw is this – a pharmaceutical company owning a medical suite and then requiring each doctor in that medical suite to only recommend the pharmaceuticals owned by the pharmaceutical company. That’s why it’s wrong. It’s a clear conflict of interest,” Swanson said.
“The highly vertically integrated nature of the dominant players means significant movement is highly unlikely…”
He also admitted that ClearView would not be able to provide the best product for every circumstance of an advice client and said that no life insurer could hold themselves out as the best provider in every situation due to differing premiums for age, gender, occupation and health status.
“You have to have choice because the circumstances of each individual are different and that’s why I suspect the boutique dealerships are more successful than the bank-owned ones, because there is open architecture,” Swanson said, pointing out that ClearView was on the APLs of nearly 300 boutique licensees but on none of the larger groups.
He attributed this to ClearView’s refusal to pay volume bonuses or shelf space fees, stating the latter could range from $80,000 to $650,000 per annum, referring to these as a “straight bribe”.
Swanson criticised the FSC and claimed that while the Government has recognised the need to open up APLs, the former had not made any progress in this area for 18 months and was unlikely to do so without intervention.
“The highly vertically integrated nature of the dominant players means significant movement is highly unlikely in the absence of regulatory reform. That is because APLs are a key to the big verticals controlling and forcing sales flows into their own products as well as key to larger advice businesses extracting both volume bonuses and shelf space fees from life insurers,” Swanson said.
He also told the PJC there was no requirement to inform advice clients that an adviser or licencee operated from a restricted APL and “…the most fair and equitable solution is for the Govt to ask ASIC to put a licence condition on AFSL to have every APRA licenced insurer on their APL”.
It is a great idea for new life insurers to enter the market but the easiest way to do that is to accept people others won’t or at prices others won’t to get volume – see the troubles industry fund underwriters had.
If you then have a financial crisis where the value of the assets the insurance company holds as investments drops and where, for example, mental health claims of self employed go through the roof (all of which happened 2008-2012), then the fate of FAI or HIH may beckon, especially if you don’t have a big anchor investor.
I am very much against leaving off APLs those insurers that are established, with a good claims record and reasonably big but I am quite comfortable if future potential solvency issues are thoroughly considered when drawing up an APL.
Ah Christoph-so many issues, but I cant help interpreting your comments as supporting the bank owned insurers, and/or the big elephant in the room in blue pants. Regardless of size of insurer, claims attitudes can violently change overnight, and previous claims performance is no indicator future claims performance.
For example, if a life office is floating, or up for sale, and due diligence has started but not announced, I can tell that event is occurring by what suddenly happens to long term IP claims, as the insurer seeks to reduce liabilities on the books. Please remember, insurers only pay claims if required by the policy and available evidence – they do not do Father Xmas impersonations, and size does not matter.
And the banks are always seeking more profit from their insurance arms. If I suddenly see a particular life company decide to seek PMARs on a cough an applicant had for a month last year, I know the pressure is on to save. If I see a bank career officer suddenly put in a place of power in their wholly owned life office I go elsewhere, as I know underwriting is going to get stupid and long term claims will be re-assessed.
APLs should be un-restricted, but remember you do not have to use a smaller insurer if you choose – just cover off in your SOA. What’s more important is that the insurer on the APL must provide a guarantee of service (the Col Fullagar proposal) to stay on the APL
Your comments on new insurers seeking volume by lessening underwriting and appearing to come in under the “market ” are of course relevant, but not new.
What should concern all advisers, particularly with a 2 year clawback, is the bigger life insurers are all announcing big premium increases up to 15%. Which raises the question, why couldn’t those insurers, and their tame actuaries, PRICE THOSE CONTRACTS CORRECTLY in the first place.
Or were those insurers just after market share and bugger the adviser. Lets face it, most people, who’s rent just increased by 15% after the first year, move out when the lease expired.
The 2 year clawback will see more of this premium gouging, not less
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