Close to 300 legacy life insurance products could be closed if the Federal Government amended laws around product rationalisation, the FSC has claimed.
In a written recommendation to the Parliamentary Joint Committee (PJC) Inquiry into Life Insurance, the FSC stated life insurance product rationalisation has stagnated for more than a decade after proposals to deal with legacy products were first tabled in 2005.
As a result of this inaction, the FSC stated the number of legacy products had continued to grow and internal surveying of its life insurance members found that 286 life products could be rationalised with initial cost reductions for FSC members of $94 million (which also includes cost savings from 77 rationalised managed investment schemes).
The FSC stated the current legislation restricts rationalisation as life insurers are required to ensure each individual policyholder will be no worse off under any individual policy condition, and while insurers could seek consent from customers, it would be impractical due to the number of products and consumers who currently hold them.
“…life insurers are effectively locked out from upgrading consumers to modern products…”
“Over time and to meet prevailing market needs, a life insurer may have issued hundreds of individual products, which may also have been further customised for individual customers,” the FSC stated.
“Given the significant variation between policy terms, life insurers are effectively locked out from upgrading consumers to modern products as the current exercise of ensuring all consumers are no worse off is too arduous and unsustainable for life insurers to participate in,” the FSC added.
In writing to the PJC, the FSC recommended the Insurance Contracts Act be amended “…to allow life companies to unilaterally amend policy terms where a consumer interest test is satisfied when comparing the overall bundle of benefits the consumer currently has versus the proposed changes”.
The FSC added the consumer interest test should applied at the collective level to enable the maximum number of consumers to benefit, and consumer rights would remain protected through the requirement for a product issuer to ensure the change is in the interests of consumers.
“The lack of a product rationalisation framework for life insurance is a significant barrier to product innovation in life insurance because life insurers don’t want to be left with small portfolios of policies from innovation initiatives which are costly to administer,” the FSC stated.
I fail to understand how “rationalisation” can occur, where individual policy-owners hold individual legally enforceable contracts with insurers. If it is just a matter of saying, “ok, we’ll call all our different term life offerings “XYZ” from now on instead of the one hundred current names” but if it is changing policy conditions, or preserving the best of the new and the old definitions, that will become a nightmare for consumers and advisers to understand exactly what each policy’d definitions. Like my words here, clear as mud?
They won’t need to really !! If they keep pricing the client out of it why worry ! Another cost saving measure certainly without the “ consumers best interests” involved
Having convinced a small business government to screw risk advisers, the pirates at the FSC now want to rape folks holding better quality legacy contracts than now available- think of those companies who NOW have capability clauses in IP contracts, but did not 5 years ago. The no dis-advantage test is there for a reason!
All this rubbish is about is saving $$$ on life insurers main frame computers which have to be enlarged with every new product. Tough titty !!!!
Bring on the Bank Royal Commission and include these idiots from the FSC
Comments AFA & FPA ?
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