FSC’s LIF approach dubbed ‘cartel’ behaviour

The Financial Services Council (FSC) engaged in cartel behaviour when creating the Life Insurance Framework (LIF) as it was driven by the big banks and insurance companies, and the industry should have gone to the Australian Competition and Consumer Commission (ACCC) with the proposition.

Such was the argument by risk adviser group, the Life Insurance Customer Group (LICG), which said the FSC chose to force the LIF reforms through with scrappy legislation possibly because they did not believe they could satisfy ACCC scrutiny.

"If the FSC believes their own rhetoric about ‘churn' and ‘significant consumer benefits', and has sufficient evidence to substantiate their claims, why not go to the ACCC?" the group asked.

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"Had industry gone to the ACCC with a proposition that could provide a better outcome for consumers, despite the negative impact on some industry stakeholders, such reforms could have been implemented a year ago?"

While cartel behaviour was illegal in Australia like price fixing, the ACCC could approve it if the benefits to consumers can be proved.

"Like restricting a competitive market by having all insurers reduce their otherwise varied pay rates to the same rate, at the same time on the same day. And all insurers implementing a common clawback arrangement on the same day at the same time," the group said.

The group, which includes Bombora Advice managing director, Wayne Handley, said the life insurance industry was sitting in expensive limbo as "common-sense, consumer-focused resistance" to poorly designed reforms had halted the passage of the LIF legislation through Parliament.

"The FSC has no data on which to justify their position, no rationale behind reducing remuneration to their recommended level, and no one has been able to specify one single benefit to consumers," the group said.

"There is no evidence of ‘churn'. No one has even defined ‘churn'."

Insurers paid $7 billion in claims last year, according to the Risk Store, and the group added clients needed advisers to help them get appropriate cover.

"These ‘reforms' do not address that, they threaten it," they said.

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Its an interesting notion, when does a lobby group cross the line to become a cartel? Very different in a legal sense but it must be a very fine line.

When they agree to implement anti competitive behaviour without prior ACCC approval or supporting govt legislation. In this case the FSC went to the govt to effectively legalise their intended anti competitive behaviour first, and thus avoid the illegality of being a cartel.

The Libs are supposed to strongly support free enterprise and Labor is supposed to strongly support consumer protection. Yet they both supported the LIF legislation which undermines free enterprise and erodes consumer protection.

Well I can agree with that - and I just continue to lament the financial planning professions lack of political clout in this game.

What is interesting now is that each of the life companies have backed off making any changes to remuneration arrangements from 1/7/16 due to LIF not being legislated in time .

Meanwhile a number of life companies were bought and sold while this fiasco was going on .

The reality is that post election the sky will not fall in life companies with still survive and maximise their profits through all three distribution channels (direct ,group and advised)

Sadly the majority of funding of our associations comes via financial instutitions who also own life companies hence the lack of support for what is a blatant attempt to shaft advisers and transfer value to the insurers,

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