As the old saying goes – there are lies, damned lies and statistics.
And that is why, when the Australian Prudential Regulation Authority (APRA) issues its statistical analyses of the insurance industry, it is usually careful to caution readers that the data needs to be read carefully and in context.
Sadly, for life/risk advisers who are within 12 months of facing the Australian Securities and Investments Commission (ASIC) review of the Life Insurance Framework (LIF) their case was not assisted by the efforts of plaintiff law firm, Maurice Blackburn, which used recent APRA data to question the value of advised life cover.
The basis of the Maurice Blackburn argument was that, on the face of it, APRA data released in mid-April suggested members of group insurance plans within superannuation funds experienced better admittance rates for claims around death and total and permanent disablement than people who gained their cover via a life/risk adviser.
But what the law firm should have noted was APRA’s comment contained in its full data set which noted a “significant variance in the admittance rate between different cover types and distribution channels, from 99% (group ordinary death) to 36% (individual advised accident)”.
It then noted: “These results, however, are affected by the number of observations” noting that those included some categories where only 11 claims had been finalised compared to other categories where more than a thousand had been finalised. In other words, apples were not necessarily being compared with apples.
Financial Planning Association (FPA) chief executive, Dante De Gori, added further clarity to the issue when he noted that the activities of financial advisers in contesting claims on behalf of their clients could actually impact the data collected by regulators such as APRA.
“…financial planners regularly lodge disputes on behalf of clients. This will automatically increase the dispute rate from non-advocacy channels. Consumers may not be aware of dispute channels available to them. Financial planners are therefore effectively advocating and this increases the complaints, which will skew the reported data,” he said.
Further, De Gori said the recommended insurance amounts through financial planners were optimal to the client and tended to be higher to cover debt and address actual lifetime needs and that therefore, the higher the insured amount the higher the chance that the insurer would undertake a more rigorous approach to the claim.
In other words, while the APRA data was certainly not wrong it did not reflect the reality of how life/risk advisers work on behalf of their clients both in obtaining cover and then at claims time – something which was significantly canvassed at the time of the prolonged debate around the establishment of the LIF.
What needs to be understood is that there is a continuing agenda within some consumer groups and plaintiff law firms to see an end to the current commission-based arrangements for life/risk advisers and a realisation that ASIC will report on the issue next year.
In a submission to the Royal Commission in November, 2018, ASIC signalled strongly that it believed then that unless the industry improved its ways there “would be a compelling case to remove the exemption from the ban on conflicted remuneration currently afforded to the sale of life insurance products altogether”.
Neither the APRA data nor Maurice Blackburn’s interpretation of it has made that case and the ASIC should dismiss such claims as a factor in its broader review of the LIF.