As the federal election draws closer, there has been a growing push for the government to re-examine the Life Insurance Framework (LIF) commission cap settings, despite the Quality of Advice Review (QAR) recommending they stay in place.
Speaking at a Financial Advice Association Australia (FAAA) roadshow event in Sydney, general manager, policy, advocacy and standards Phil Anderson reiterated that life insurance commission settings form a “key part” of the association’s policy platform.
Covered under objective 1.5 in the platform, the FAAA has marked taking action to “better enable the delivery of life insurance advice to facilitate more Australians being adequately covered” as an ongoing long-term goal.
Anderson explained that “making sure that the LIF caps enable the provision of life insurance advice in an economically viable manner” is core to this objective.
“We need to make sure that it remains feasible to provide advice to younger Australians about their life insurance needs,” he said.
“We’ve also expressed very strong views against what we’ve seen in the in the life insurance market in recent years and upfront premium discount, which we don’t think is in the best interest of clients. We don’t think it’s in the best interest of advisers either.”
Speaking with ifa earlier this year, Skye Wealth founder Phil Thompson argued that the lack of disclosure by insurers about the practice of duration discounting, while not illegal, is certainly misleading for customers.
“The reason why it’s not good is because a lot of consumers and a lot of advisers don’t even know that duration discounting happens in the market because it’s really difficult to understand the actual discount,” Thompson told ifa.
“If I’m going to buy an Apple laptop, and I see that it’s normally $2,000 but today it’s $1,500 then great. I can see what the original price is and what the discount is today, and I also don’t need to purchase it once I’ve already bought it, but if I have to purchase it every year, I would want to know what the likely long-term cost is.
“And the insurance companies actually under disclose these discounts. Most of them don’t actually disclose it at all.”
Anderson added that the overall survival of the life insurance industry is at stake, with these being among the long list of issues emerging in the space.
“We think that there’s been substantial decline in the number of advisers providing life insurance advice, significant decline in new business,” he said.
“So, we’re not getting the number of new clients into the insurance pools to make it sustainable long term. We’ve had too many years of substantial premium increases, which mean that advisers are spending their time trying to retain clients, rather than focus on new clients.”
On Wednesday, Association of Independently Owned Financial Professionals (AIOFP) executive director Peter Johnston said the possibility of a minority government creates issues in getting any movement on commission levels.
“One of the key advice issues that needs fixing for consumers, advisers and the nation, in general, is how the LIF legislation has been strangling the risk/life cover and severely affecting national underinsurance,” Johnston said.
“With a hung Parliament looking likely where either the left leaning Teals or the Greens will be playing a pivotal role, getting risk back to pre-LIF conditions will be very difficult post-election.
“The specific problem is the entrenched ideology of rejecting commission-based renumeration regardless of the circumstances by the left leaning fraternity.
“Unfortunately, the left have further infiltrated all levels of government and bureaucracy over the past decade where sadly they don’t understand the risk culture and reject the notion that most consumers prefer paying for their insurance cover by a commission formula.”
While he acknowledged that the QAR recommendations supported the current commission split, “clearly this formula has failed”.
“The recommendation should have been to return the conditions back to the pre-LIF environment,” he added.
One important and little understood piece of the puzzle is that the former Government did not actually legislate the specific LIF caps. Instead they authorised ASIC to set the caps. If the Government directed ASIC to change the LIF caps, that could all happen without the need for legislative change, including the need to push this through the parliament where it might be opposed by those who have an ideologic dislike of commissions.
Now thats a very interesting point
It also makes sense in the context that LIF was dreamt up by the big four banks who were looking to sell their life offices and achieved the enthusiastic endorsement from the bank-controlled FSC. There were no suitable buyers within Australia and they had to appeal to overseas insurers. What better way to sell your damaged old rubbish business to a prospective buyer than to be able to say “we’ve just convinced the government to halve your distribution costs after you purchase our old life insurer”.
It would be akin to a situation where someeone selling an old car would to be able to say to the prospective buyer “I’ve done a deal for you mate, and your insurance and registration costs will be halved.
The banks have always been the smartest operators in the room. They used the failed ASIC Report 413 to convince ASIC that it would be a good idea to halve commissions payable to those nasty dirty life insurance advisors. LIF appealed to ASIC’s long-standing anti-commission bias.
And the fact that it wasn’t legislated was even better. ASIC won on all counts
And, as usual, ASIC and the government were warned by the practitioners at the front and completely ignored the advice. What would advisers know?
Five years on we have a life insurance industry under threat from market failure. A drop in 60% of genuine new business into the life insurance pools has generated “gouging ” on legacy products and the introduction of the obnoxious and understated Duration Based Pricing
You couldn’t script this rubbish!
Josh-from-accounts… the culprit?
ASIC Report 413, titled “Review of retail life insurance advice,” was published by the Australian Securities and Investments Commission (ASIC) in October 2014. It examined the quality of financial advice given to consumers regarding retail life insurance and identified serious concerns in the industry.
Coincidentally, they unfairly dismissed this financial planner Sept 2014.
The correct transfer form was generated after this financial planner left. Initial transfer form provided was incorrect & manipulated (dates removed & it was for a different product). The below was reported to ASIC a year and a few months after this financial planner started his own practice. This could’ve been avoided if ASIC initially / thoroughly investigated the matter. Seriously!
ASIC should review the case and properly investigate the financial planner they crucified (lost their houses, savings and nearly lost his family and suffered significant distress through this experience until now) for alleged churning of insurance products. Through some bogus complaint (severely manipulated & incomplete misleading information) regarding this financial planner, they alleged the financial planner churned insurance products and put his clients into an inferior product and claimed commissions from it (His superiors received ALL the commissions as per evidence, not him, he was an employee). Turns out, this financial planner had no choice to represent himself at the AAT (no funds to hire a lawyer or barrister, spent $400k legal fees). EVIDENCE shows new life insurance products clearly had more features and benefits and monthly premiums was significantly lower and had a reference number before assessment for every single file (Reviewed by 2 different departments). Materials were severely manipulated to make it look like this financial planner was a crook. This financial planner had no compliance breaches in the 4 years he was employed, 100 plus good character references from the community and industry & had all the awards, 3 independent experts was hired to investigate the matter and turns out there was no formal / verbal warning of any breaches and other financial planners were doing it and still practising.
Miscarriage of Justice! These are Facts!
Nothings working out is it??? – scrap everything and let’s go back to 2010 and 2011, bring back the bonuses, bring back the economy, comms go up 100-120%, 1 year responsibility and let’s go. Make Australia great again!
From memory Phil was against LIF but the FPA fell in behind the insurers and thought it was a great idea. Probably not so good in hindsight. Might have been ok if compliance had of reduced like we were told it would rather than doubling.
Commissions should be banned and there is no need to sell people on the need for insurance…. how’s that working out for you muppets?