As an adviser I felt compelled to comment on this developing story, which has uncovered several problems with insurance claims made on CommInsure policies.
By now, you've likely seen the story of James Kessel, a 46-year-old diesel mechanic from Wee Waa in NSW who suffered a severe heart attack.
Insured with CommInsure for $1 million in trauma cover, when the time came to claim, James only received $25,000.
As an adviser I felt compelled to comment on this developing story. There are so many aspects relevant to the adviser community right now, especially in light of the reforms, and it is always particularly troubling to see individuals and families being sold products that let them down when they need them most.
The independence of a bank’s in-house financial adviser
Firstly, how did James come to this policy? Did he seek it out off his own back or was it purchased through bank channels?
Banks recommend their own products. They receive bonuses for sales. You should consider the impartiality of bank-based financial advisers recommending their own products. Absolutely, it could be the best product for you, but I am curious to know what James’s Statement of Advice said in this case.
Churning versus reasonable review
Churning is when advisers review a policy unnecessarily to pocket more commission. It’s getting a lot of attention and has been cited as one of the main reasons for reform in the sector.
But when is it not churning? When is it a reasonable process, to review a client’s products and ensure that it will meet their needs if the time comes? According to the article, James had been paying premiums on this policy for ‘most of his adult life’. When was this policy last reviewed?
Advisers should be up to date on their client’s policies and, if a family history surfaces or there is a change in the market place that could affect a client if they try to claim, the policy should be reviewed. This isn’t churning, and an adviser who doesn’t in these circumstances is not acting in the client's best interests.
Fear mongering and industry reform
The article makes the assertion that ‘… the $44 billion life insurance sector has been a problem industry for decades. It is riddled with conflicts of interest such as the generous commissions paid to advisers to flog policies.’
I will simply refer to my recent article in Risk Adviser, where I made this statement:
‘One of the downsides of the recent focus on advisers has no doubt been the impact on legitimate, principled people who, regardless of qualifications, would behave with their clients' best interests in mind… I would say that a degree does not equal a passion for working with people or on an overall empathy for a family’s financial security.'
Yes, there are issues in the sector (no one would deny it) and I've been an advocate for cleaning it up for a long time. However, I think journalists have a responsibility not to frighten consumers who may find themselves thinking: ‘Well, who do I trust now?’
There are people with principles in this industry who have clients’ best interests in mind.
Mark Rando is the managing director and a senior adviser of Rando & Associates
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