Why did the government get involved in LIF?
A financial planner has expressed bewilderment at the Federal Government's involvement in mandating the Life Insurance Framework (LIF), stating neither the Government nor its constituents had anything to gain from it.
Paramount Financial Services Group director, Wayne Leggett, said he had wondered how LIF came to be and assumed it must have originated from the Financial Services Council (FSC).
"What the FSC's got is a government-mandated reduction in their overhead across the board. I mean, who wouldn't like that?" Leggett asked.
"They've got to love it because the Government is prescribing that they're going to mandate a reduction in the cost of insurance companies procuring business. It's being framed in law. What business wouldn't love that to happen?
"From the get go I've been trying to figure out why the government would be involved in this and how on earth the FSC ever got to this point (assuming it came from them because can't think of who else would've driven the agenda)."
Leggett also noted the continuing "rhetoric" around churn but argued there was no empirical evidence to prove churn exists, it is problematic, or that it is problematic for clients. He added that nobody had presented a case that proved clients had been deleteriously affected by their products being replaced.
"For a start we don't have a definition of churning, because we suggest that churning is a replacement of business when the circumstances are not in the clients' best interest. If it is in the client's best interest to replace company A with company B then it's not churning," he said.
From a client's perspective, insurance companies should have made retention of existing business slightly more attractive to an insured than switching to a different company through concessional underwriting conditions, and slight premium discounts.
"If they said to the existing clients, ‘if you come back to us for more business, we'll give you slightly favourable underwriting terms then that in client's best interests', that's the reason for the adviser to say, ‘look, we could go to a different company but you'll get concessional terms with your existing insurer so let's just stay with that'.
"Nobody's prepared to do that."
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