The financial services regulators have sent a clear message to the life/risk industry about its past mistakes.
The life/risk sector clearly has a problem - both the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission last week used the Financial Services Council annual conference to continue harsh criticism of not only the industry’s past practices and products but its continuing practices.
The critical analysis was led by APRA deputy chairman, Ian Laughlin, who continued a theme he had kicked off when giving evidence before a Parliamentary Committee. In his answers to the parliamentarians, Laughlin suggested that the major insurers had not shown the ability to learn from their mistakes. It was a message he reinforced to delegates attending the FSC conference, at least three of whom were insurance company chief executives.
Laughlin was very pointed in his comments to the FSC conference, suggesting there were those whose careers in the insurance industry had prospered on the back of products which had ultimately been seen to fail.
“People have been rewarded as a result of products that have not been in the best interests of the industry,” he said.
There will be many planners and advisers who know exactly the products to which Laughlin was referring and at least some of the people who prospered from the sale and promotion of those products.
It is no secret in the financial services industry that the balance sheets of many of the major insurers were hit hard by the impact of the changed claims experience, which grew out of the global financial crisis and which have only just begun to recover. A number of insurance chief executives have conceded that they got it wrong with respect to mental health, and total and permanent disability claims, particularly in the group insurance space.
The point Laughlin made at the FSC conference was that the insurers had encountered similar problems in the past and should have more clearly recognised the consequences of their actions. He further suggested that they had done nothing particularly unique to resolve the problems and therefore a question mark would remain hovering over the effectiveness of their actions.
He said a lot of the problems which had occurred were not new to the industry, while a log of the solutions which had been put in place were also not new to the industry, so he therefore wondered what had actually changed.
But if financial planners and advisers thought regulatory criticism was being confined to the insurers they were wrong. ASIC deputy chairman, Peter Kell sent a clear message that issues such as churn and remuneration related to life/risk sales were still an issue, still very much at the forefront of the regulator’s thinking and that a report on the issue would be released very soon.
Clearly referring to the efforts of the FSC to develop a code of practice aimed at addressing churn, Kell suggested the industry had sought to “grapple” with the issues but had not gone far enough, fast enough.
The underlying message for the insurance industry is therefore that the two regulators have both insurers and advisers clearly in their sights and there are particular issues they want to see addressed including product design and remuneration models.
It seems that while the debate around churn has lain dormant for nearly two years it is certainly not dead.