The Australian Securities and Investments Commission (ASIC) should not be the ultimate arbiter of the future of the Life Insurance Framework (LIF). The decision must ultimately rest with the Government, not the regulatory bureaucrats.
As we have written elsewhere in this edition of Money Management, ASIC will next year complete its post-implementation review of the LIF based on the brief handed to it in 2017 but in the intervening period many things have changed.
Indeed, since ASIC was handed its post-implementation review brief there have been at least two different ministers covering the Financial Services portfolio, a significant personnel change within the upper echelons of ASIC itself with a new chair (James Shipton) and two new deputy chairs and the exit of at least 6,000 financial advisers, many of them life/risk specialists.
Given that the development of the Life Insurance Framework (LIF) was predicated on largely unsubstantiated allegations of high levels of policy “churn” with consequent impacts on premium pricing, two questions arise: What was the real level of churn in 2017/18 and what is it now? Is there any evidence of increased life/risk adviser failure to meet regulatory standards?
There is, too, the more pertinent question of whether advice around life insurance should be viewed differently because life insurance is a financial product which most industry veterans agree is “sold, not brought”.
Allied to the reality that life insurance is a financial product is that in a still largely under-insured Australia, the evidence continues to suggest that most consumers are more than happy to have life/risk advisers paid by way of commission rather than the consumers being forced to reach into their pockets to pay via fee for service.
So the threshold question for the Government in looking at the LIF is whether it accepts that the holding of life/risk insurance delivers an important benefit to the economy, and that life/risk advisers are, ultimately, involved in assisting clients to select the most appropriate product to meet their needs.
It is entirely appropriate for ASIC to analyse the data around life policy lapse rates and the conduct of life/risk advisers, but it is not appropriate for a regulator to make or have undue input in a policy decision about the nature of life insurance as a product and the economic benefits it may or may not deliver.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was clearly leaning towards recommending ending commissions in the life insurance advice sphere, but it must be remembered that with the trialling of the LIF already on foot it was never within the Royal Commission’s brief to make such a finding.
It was also clear from statements made by senior ASIC officials in the aftermath of the Royal Commission that the regulator remained similarly ill-disposed towards commission-based remuneration. But it must be remembered that ASIC provided much material to the Royal Commission which arguably substantially helped shape its views.
For all of these reasons, the future of the LIF must not be a purely regulatory decision. It must be a pragmatic political policy decision reflecting the realities of the life insurance industry in 2020, not the agendas of half a decade ago.