- How would you describe 2021 for the risk/insurance sector?
It was a tough year, particularly for those directly impacted by COVID-19. As an industry, we continued to deliver on our promise to customers.
In the face of ongoing uncertainty, financial advisers continued to deliver high quality, timely advice to their clients. They provid much-needed reassurance and guidance and help clients stay on course towards their goals and objectives.
As a result, demand for professional advice and life insurance is increasing, according to consumer research. We are also seeing greater recognition of the value and importance of professional advice among regulators and the government, which is leading to a bias towards deregulation in financial services.
This sets the industry up for a great 2022, following a year of significant amount of regulatory change, including the implementation of key APRA Individual Disability Income Insurance (IDII) measures and the introduction of the new Design and Distribution Obligations (DDO) regime.
- What are the biggest changes/areas of concern you would like to see addressed?
Deferral of APRA’s proposed five-year rule
We believe APRA’s plan to limit the life insurance contract term of new income protection insurance contracts to a maximum of five years (the five-year rule), which is due to start from 1 October 2022, is unworkable and will significantly disadvantage consumers.
We believe that the way life insurance contracts have traditionally been legally structured serve the best interests of consumers by ensuring cover is guaranteed renewable. This is how life insurance contracts in Australia and around the world are currently structured, requiring insurers to renew an insured person’s cover each year on the same terms until expiry.
Our experience informs us that consumers want certainty in their cover, which, in turn, safeguards their future.
ClearView has been a strong supporter of APRA’s measures to move income protection to a sustainable state; however, five-year contract terms will significantly disadvantage consumers.
Potential unintended consequences include:
- More costly and less comprehensive cover for customers as they age, with the added risk of not been afforded any insurance at all;
- A lack of incentive for young people to take out cover early to benefit from good health and lower premiums;
- Higher lapse rates;
- Reduced ability for customers to claim on cover; and
- Added complexity for consumers, financial advisers and life insurance companies for no material benefit.
Simplification of advice, improved affordability
An important step towards making financial advice more assessable and affordable is to simplify the advice process and remove unnecessary complexity.
We support the recommendations contained in the Financial Services Council’s (FSC) recent paper on financial advice, namely removing the safe harbour steps in the Best Interest Duty, replacing lengthy Statements of Advice with a simpler Letter of Advice, and amending the Code of Ethics to enable a principles-based system. The FSC’s recommendations are an important starting point.
Tax deductibility of financial advice fees would, however, represent a further fundamental improvement in advice affordability. It would reduce the net cost to the client and encourage more people to seek advice.
ClearView is committed to reaching greater accessibility of advice for all Australians and, in particular, we welcome Treasury’s upcoming Quality of Financial Advice review.
- What are your hopes for the industry in 2022?
A safe and healthy year, with the threat of COVID-19 eliminated as much as possible.
As regulatory activity eases, more Australians seek advice and a sense of optimism returns. I’d like to see a thriving advice industry, growing businesses and more advisers enter the industry.
With demand for advice rising and supply falling (for a myriad of reasons covered by this publication), we need to promote financial advice as an attractive occupation and career path. We need to find a way to attract some of the best and brightest minds.
“we support the recommendations of the FSC so we (insurers) can all flog product directly to consumers.”
I support the recommendations of the FSC but the advice should ONLY be allowed to be provided by a fully qualified financial adviser, not a call centre or any other method used for flogging product.