The Financial Services Council (FSC) has reiterated its push for the life insurance framework (LIF) to be retained by Treasury following December’s Quality of Advice Review (QAR).
In its submission, the peak body recommended LIF be retained “because it has been successful in managing potential conflicts between advisers and consumers by providing an affordable mechanism for consumers to get personal advice on life insurance”.
This week, FSC policy manager Matthew Hawkes has again called for its retention and argued it has improved the quality of advice through less re-broking, a decrease in clawbacks and an increase in the duration that consumers retain their policies.
In an article published on FSC’s website, Mr Hawkes said LIF has also helped address the issue of the rising cost of advice and consumers’ access to advice.
“…LIF helps consumers get affordable personal advice about life insurance by allowing the cost of the advice to be included in the premium and spread over the term of the policy. This is important for people who cannot afford an up-front fee for personal risk advice, such as people getting their first mortgage or starting a family. The life events that trigger the need for life insurance for the first time are often the very reason why people cannot afford an up-front fee,” he wrote.
Mr Hawkes continued: “… if the LIF remuneration basis were removed, this is projected to mean a 28 per cent reduction in the number of Australians who have retail life insurance policies by 2026.
“Not only would this mean Australians are less adequately insured, it would also put upward pressure on the cost of life insurance at a time when household budgets are already under pressure.”
Mr Hawkes’ comments come after a survey conducted by ClearView earlier this year found that LIF had little impact on advice quality.
The survey, conducted with ClearView members between 20 April and 23 May 2022 to support its ensuing QAR submission to Treasury, found that LIF had “no material impact” on advice quality and actually hindered advisers’ ability to serve clients.
Just 5 per cent, said the LIF, introduced in 2018, did have a material impact on advice quality.
Appearing on a new episode of the ifa Show podcast, Mr Swanson said that the view by the survey respondents was “a fair call”.
“My view is that’s quite understandable too, because I don’t actually think the LIF framework actually does have much impact on the quality of advice per se,” he said.
“I think there are other issues at play.”
Listen to the full podcast with Mr Swanson here.
Mr Hawkes must be just waiting for his employment contract to expire. Don’t want to rock the apple kart so close to the end and miss out on the gold watch and tax payer funded defined benefit scheme.
So. Dry sad that the FSC and Hawkes feel relevant or informed. Such a sad article and the comments below it all truely spoke of the calamity NOW be experienced and the future is quite bleak for not only advisers but quality insurers and very importantly, the public. I specialised in risk in my business but also did a lot of pre and post retirement advise and I’m so glad to be out after over 30 years. I’m so saddened to see the poor quality people, inexperienced and uninformed, driving the potential collapse of such a vital industry.
Mr Hawkes, you are the epitome of “empty vessels make the most noise”
If Mr Hawkes thinks that LIF did anything positive for clients he is either delusional, incompetent or straight out lying. Insurance premiums are through the roof since LIF, existing clients are cancelling policies, new business is pretty much non existent, clients can’t get affordable insurance advice and insurance companies are bleeding money. Yet he thinks LIF was good for anyone? Come out into the real world Mr Hawkes and talk to those dealing with these issues rather than writing articles which are completely untrue and demonstrate exactly why the FSC should be ignored.
Without LIF then his members would not make any money. He is correct, there would not be a single financial planner doing risk on a stand alone basis in Australia. LIF worked for the insurers because the only people who got screwed were the advisers. Personally I’m still hoping for the SOA improvements that were supposed to come with the commission decrease.
Delusional woudl be correct. I have a small practice with approx. 300 clients. In the last fianncial year i wrote 4brand new policies (new clients), reduced insured amounts for 128 clients and cancelled 12 policies in full.
Yep LIF is working on the ground. 🙂
I suppose this is essentially the problem with our industry. The people with the greatest voice have no idea what they are talking about.
The FSC are so far wide of the mark it is frightening. I am unable to provide advice to first time home buyers anymore. I’d go bust very quickly if I did. I am sure I am not alone. Can the FSC provide any stats to back up their position.
Unfortunately, I just don’t think there is anyone in government who can pull the FSC up on this and tell them they are talking absolute nonsense. I really wish there was.
The statement by Hawkes makes no sense at all. Not sure what real information he is working with but it is pretty simple scenario.
Advisers who specialise in risk are the largest group who are exiting the adviser base. Of those left they can’t spend 4 hours evaluating client insurance needs, preparing an SoA and then delivering the outcomes to the client where the average earn is $1,000. Plus that $1,000 may not happen at all, or happen but be clawed back.
Meanwhile, with no advice, the consumer retains their bank (FSC member) issued insurance policy for longer due to not being able to get advice as it is not commercial for the adviser to provide such and make a living. So Yes, retain LIF and support uninformed consumers to continue to pay for existing policies whether they are appropriate or not.
Yes, no wonder FSC (Banks!) love LIF.
p.s. consumer benefits arise from cost effective appropriate policies. Not necessarily the cheapest or most comprehensive. Which is why consumers need an appropriately remunerated adviser to assist them. Pity they are all retiring or finding something more financially sustaining to do.
This must be a joke. I’ve witnessed a massive exit of advisers from the Risk space since LIF, massive premium hikes for consumers and the only reason life companies are reporting inflows is due to consolidation in the industry. Follow this path and within a decade the industry will die, with insurance impractically affordable for anyone.
One needs only look at the similar UK story to see the future of the current trajectory.
Why oh why do self serving interest groups continue to distort reality and rip off the consumer?
LIF was justified by being able to improve the quality of insurance….Yet what the reality is, cost have dramatically increase for the consumer, advice is no longer profitable to provide, so consumers are overpaying for what are essentially inferior products and the Life Companies continue to consolidate offering yet poor service and product.
The FSC is a pure example of what is wrong with our country in most areas. Those looking to profit seem to have the loudest and most corrupt voice.
I don’t know any adviser seeing “people getting their first mortgage or starting a family”, to advise on insurance. Anyone who is, are happy to run their business at a loss, or they are charging a significant upfront fee. Bodies like the FSC and the Government have ensured that providing advice to these people is to costly due to compliance and over-regulation, and simultaneously cut the payment to service these people. So these people are not receiving advice under LIF and are being turned away by advisers. It would be worse if commissions are removed, yes, but its already really bad. Even worse is that when they have a claimable event, they claim on their default cover in super, likely through a lawyer, and lose 30% of their measly under-insured benefit to a law firms who have the ear of various political parties. Cut adviser commissions by over 30% on the premium, but happy to let the lawyers take 30% of the benefit!
“Will put upward pressure on premiums..” because introducing LIF and thus reducing adviser remuneration resulted in reduced premiums to the consumer, said no one ever!!
No wonder the Life Insurers left FSC and set up CALI…..they have never been or never will be a ‘peak body’ especially in the advice space….FSC please stay way from the Advice community, you are not wanted anywhere near us.
LIF is a failure.
Premiums have increased and productivity has decreased.
Why is it so difficult to understand the provision of risk insurance advice to young healthy lives needs to be simplified.
Additional young healthy lives in the insurance pool will reduce the cost of premiums to all.
The adviser needs incentive and better process to move back into mortgage life insurance.
“Additional young healthy lives in the insurance pool will reduce the cost of premiums to all.
The adviser needs incentive and better process to move back into mortgage life insurance.”
Phillip, you have nailed it with those two sentences. The insurance pools needs young healthy lives and these exact same lives are uneconomical for the provision of advice..