The Australian Securities and Investments Commission (ASIC) has developed a new example statement of advice (SOA) for advice around life insurance by relying heavily on behavioural economics.
At the same time, the regulator has pointed to its long-held concerns about the quality of advice in the life insurance sector as one of the reasons for its use of behavioural economics.
The regulator also complained that SOAs continued to be too long and too complex.
“Lengthy SOAs are common in the retail life insurance industry and can impede customer understanding of the advice,” it said.
The new ASIC example SOA is based on a limited financial advice scenario of a married couple with two young children who have asked a financial planner to advise them on life insurance cover in the event of death or disability, taking into account their current income and assets.
The regulator said the example SOA had been developed in line with ASIC’s increasing use of behavioural research to understand regulatory problems and, in some cases, design and refine solutions for them.
“Financial products and services are inherently complex and often require customers to make important decisions involving risk and uncertainty,” ASIC said. “Behavioural economics tells us that this can create a fertile environment for behavioural biases to affect people’s decisions.”
“In a complex environment where customers are subject to behavioural biases, proper disclosure may help customers make informed decisions about the products and services they are purchasing,” it said.
