The Association of Financial Advisers (AFA) has called for a raft of changes to take place within the operations and culture of life insurers claiming the same level of change which has been required of advisers needs to take place among product providers to regain consumer confidence in the sector.
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The AFA made the call in its submission to the Parliamentary Joint Committee (PJC) Inquiry into the Life Insurance Industry<\/em> in which it recommended that underwriting take place on all life insurance products at time of application, a freeze on premiums during the first two years of a policy and the banning of inappropriate insurer sales practices.<\/p>\n The Association\u2019s submission, which suggests 26 changes across six key areas, also called for Parliamentary scrutiny of the Life Insurance Code of Practice produced by the Financial Services Council (FSC), claiming there were a number of deficiencies in the Code, including a lack of commitment to advisers and advised insurance.<\/p>\n Insurer Obligations<\/strong><\/p>\n In calling for underwriting to take place at time of application the AFA said the practice of underwriting at claim time should be banned across the board as it meant that consumers were paying premiums without being covered under the terms of their policy.<\/p>\n The AFA was dismissive of the desire of insurers to have flexible insurance arrangements for consumers stating that \u201c\u2026continuing to provide cover without underwriting is unacceptable given the consequences to consumers who may not be aware that they are not actually covered until they claim\u201d.<\/p>\n In focussing on life insurers, the AFA also called for a ban on any insurer sales practice that was likely to 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.<\/p>\n As such it called for the end of any incentives that may conflict with an adviser\u2019s obligations including arrangements to use in-house product and to reward threshold based volumes from advisers or licensees as well as influencing the restriction of Approved Product Lists (APLs) through reduced pricing for advisers.<\/p>\n The AFA also called for life insurers to not increase premiums during the first two years of policy commencement, except for CPI increases in the sum insured.<\/p>\n It argued this was required during the clawback period to protect consumers from misleading sales practices designed to increase sales while hiding the actual cost of the policy which appears later through premium increases after the policy is put in place.<\/p>\n \u201cThe two-year clawback shifts an unfair proportion of the responsibility for lapsed policies onto the financial adviser in its current form. Restricting premium increases during the clawback period will bring greater fairness to this blunt instrument,” the submission stated.<\/p>\n\u201c\u2026continuing to provide cover without underwriting is unacceptable…to consumers who may not be aware that they are not actually covered until they claim\u201d<\/h6>\n