Licensee members of the Financial Services Council (FSC) will be required to provide a choice of three or more life insurance providers on their approved product lists (APLs) together with robust off-APL processes under a new standard released this week.
The FSC finalised its standard for life insurance APLs on Thursday with the intention of implementing it from 1 January, next year, claiming the arrangement would promote competitive access and choice for advisers and their clients.
The standard will become compulsory for FSC member licensees from 1 July, next year.
The FSC said development of the standard had been the subject of extensive consultation and supported APL construction practices that promote competitive access and choice for advisers and their clients.
“Following an extensive consultation process the final standard goes further than previous drafts in that it requires FSC member life insurance APLs to contain a choice of three or more life insurance providers and to be supported by robust off-APL processes,” the FSC release statement said. “This enables advisers to recommend alternative products or insurance providers which are not on the APL to meet best interest duty obligations.”
The statement said that the majority of FSC advice licensee members already offered a choice of three or more providers on their APLs but that to ensure consumers had full transparency to make an informed choice, disclosure of the number of products and providers on the life insurance APL would l also be included in the advice process.
Additionally, there would be a requirement for APLs to have a reasonable basis and to be formulated with the best interest duty in mind.
The FSC said the new standard also set out best practice principles which, while they were not mandatory, were intended to assist with creating and maintaining a life insurance APL.
It said examples of best practice principles included:
• Having an investment and product committee of experienced research professionals to assist with a licensee’s internal research process;
• Licensees are encouraged to develop and utilise benchmark methodology in identifying which products are suitable for inclusion on the APL;
• Considering a range of factors when reviewing the suitability of an insurance product/provider for inclusion on the APL (such as claims payout ratios, pricing, and corporate strength).
The FSC said the new standard would be reviewed within 18 months of its start.
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