Life Insurance is a large and very important part of Australia’s financial sector.
According to assistant Treasurer Josh Frydenberg “there are 28 life insurance companies writing more than $44 billion worth of business, and more than 13,500 life insurance advisers employed in Australia.” The policies they provide – be it through a superannuation fund, direct from an insurer or via a financial adviser – provide essential financial security in the event of death, serious illness or injury. Without it, even the best laid plans often go awry.
However, it has become clear through a series of reviews that reform in the sector is needed.
The latest of these reviews, an independent report by John Trowbridge and one commissioned by the industry itself, focuses yet again on the misalignment of interests that can occur between insurers, the adviser and the client.
Like the Murray Report before it, Trowbridge’s main concern is upfront commission and the issue of ‘churning’. His report outlines six policy recommendations for improvement.
- Upfront commissions be replaced by level commissions combined with an
initial advice payment (to cover policy set-up) that can not be paid more than
once every five years (‘the five year rule’).
- A transition period of three years in the implementation of point 1.
- Licensees be prohibited from receiving non-commission benefits from insurers that might have an impact on the products they recommend to their clients.
- Licensees to extend the number of providers on their Approved product list to include at least half of the providers servicing the market.
- Improve the standards of client engagement and education
- The industry to develop a ‘Life Insurance Code of Practice’ to better inform and govern adviser customer interactions.
FinSec Partners have long championed the raising of professionalism in financial planning, particularly the banning of conflicted remuneration and the requirement for advisers to act in the best interests of their clients. In this context, we welcome the Trowbridge Report .
Whilst the report (at this stage it is only a report, not law) addresses key issues within the risk industry and to this extent should be applauded, the current recommendations do require considerable ‘tuning’ to ensure the desired outcomes are in-fact achieved. We hope the 5 year rule allows the flexibility to deliver ‘best interest’ advice in-line with a persons changing needs and that any savings to manufacturers as a consequence of reform, is passed directly on to consumers, not pocketed as additional company profits.
Most in the industry would agree ‘churn’ should be prosecuted but not when the recommendations are in danger of helping large integrated insurers on the back of the sins of so few.
A step in the right direction none-the-less.