Exclude advice obligations from insurance claims – ASFA

9 April 2019

Insurance claims handling should not be subject to the same obligations as financial advice, according to major superannuation funds body, the Association of Superannuation Funds of Australia (ASFA).

In a submission filed with the Federal Treasury in response to moves to make insurance claims-handling a financial service, ASFA has also urged against making it a requirement for superannuation funds to obtain an Australian Financial Services License (AFSL), noting that not all funds are currently licensed.

“… not all RSE licensees hold an AFSL,” it said. “ASFA considers that while such licensees should be held to account in the same way as other trustees, it would be beneficial if RSE licensees were not required to obtain an AFSL for the sole purpose of satisfying this claims handling obligation.”

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“ASFA would be happy to establish a consultation group made up of ASFA members to assist ASIC if it wishes to explore these issues further and to ensure that this reform is adapted to the superannuation environment to achieve its purpose as efficiently as possible.”

“Finally, ASFA acknowledges that the consultation paper has already identified this as a risk but we wish to emphasise the importance of claims handling obligations being kept separate from those related to financial, especially personal, advice,” the submission said.

“If claims handling were to be regarded as subject to the financial advice obligations, fund members would suffer increased costs and delays due to disclosure requirements and limits on the range of information that could be provided with no obvious additional benefit to the fund member,” it said.

The submission said that while ASFA supported the Royal Commission recommendation that insurance claims handling be made a financial service it believed insurance inside superannuation needed to be treated in a different manner to insurance outside superannuation.

“…we consider that insurance in superannuation needs to be viewed differently from insurance provided outside the superannuation environment. A different approach may be required for the treatment of RSE licensees to ensure that the same objectives are achieved both within and outside the superannuation system,” it said.

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It IS Financial advice - decisions around pensions/lump sum amounts and beneficiaries are very important at this time. Despite the Royal Commissions blood letting over dead people paying ongoing advice fees it's at this time that an adviser often really delivers value and support.
If AFSA are suggesting that maybe, just maybe the financial advice process is a complex, costly nightmare of suffering for the client and the qualified adviser - join the club. Let's look at ways to make the SYSTEM better rather than just calling for selfish carve outs when life gets ya down.

Michael, as an adviser with forty years experience, largely in risk products, I both agree and disagree with you. Yes, I do provide advice at claims time, but it is really factual in nature. ie: "you have a specified illness benefit ..... " or "we need to submit a certified copy of the death certificate." making it designated product advice, what value would there be to a client in needing to receive this type of assistance in a Statement of Advice." If you read Treasury's Consultation paper on this issue, SOAs are a very real possibility of their review. This would only complicate and delay the claims process for clients at their very time of need, causing them unnecessary distress. hardly in their best interest?

No disrespect to your experience but you've highlighted exactly why I never stayed as a pure risk adviser despite my passion for insurance over investments. What exactly should people do with the money they have inherited or received? What if they were better off leaving the majority of their payment in their super and taking a pension (in the case of TPD) or sorting out their estate and beneficiaries prior to a claim in the event of terminal illness?
For the same reason accountants should be licensed so should super funds and the processing of a claim is more likely to require financial advice than not.
If SOA's are a real possibility then let's have it - hopefully enough people will be exposed to them to make the powers that be realize that are a hopelessly complicated mess in need of reform.

Yet another difficult area to legislate effectively.

Yes, this is advice. As earlier comments have suggested, it is both 'general' and 'personal financial' advice, and the tie between the two is extremely difficult to effectively legislate. This is the case for all advice surrounding products - so claims is no different in this way.

However, claims ARE different.

Like most other long-lived financial planning businesses, we have managed a large number of claims over the years. This includes a list of claims that might never have been paid without our support and intervention. I am not certain that the clients involved would have paid for our preparation and compliance surrounding an obligatory Statement of Advice (SoA) at that time.

The costs and time and compliance risks involved would reduce our own businesss enthusiasm for pursuing such activity. The risk/reward equation becomes highly skewed against the adviser.

There appears to me to be little political or legislative understanding or appreciation of the relationship-based nature of adviser work. Our business is based on long term relationships. Banks and institutions are disinterested in long term relationships. They are interested in transactions. Legislators and consumer advocacy groups spent inordinate time and money and energy trying to manage the risks associated with transactional financial services. We long term advisers are caught up in this imbroglio, to nobody's benefit.

Claims management is a service that advisers have provided as part of the overall "lifetime" services assumed to be part and parcel of the ongoing fee arrangement. Tear apart the ongoing fee arrangement and you reduce the ability to subsidise these activities. Fee for service is all well and good when folk are healthy, wealthy and wise. For all the rest, it is an option they cannot afford.

I wish more people would take the time to understand this.

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