The Financial Planning Association (FPA) has weighed in on life insurance companies taking responsibility for perceptions of ‘churn’ arguing that the insurance companies themselves contribute to the situation.
In its submission to the Parliamentary Joint Committee review of the Life Insurance Industry, the FPA said it should continue to be noted “that life companies themselves contribute to policy changes by consumers as they compete not only on pricing but also terms and conditions”.
In doing so, the FPA made clear it believed that not only should advisers be made to play a role in structural change, but also the insurers because the necessary change could not be achieved “simply through banning upfront commissions”.
“… this structural change requires initiative and commitment across the financial services sector, as well as the political willpower of the Government and of professional associations who contribute to the culture, values, and standards in the life risk sector,” the submission said.
“This structural change, like the structural changes that have occurred in the wealth management space, cannot occur simply through banning upfront commissions.”
However the FPA submission said that the organisation “recognised that remuneration structures in the life risk sector create conflicts of interest that can misalign the interests of financial intermediaries and users of the financial system”.
“Our ambition, which we urged in our submission to Treasury was that the Government and Treasury share the burden and help to facilitate the life risk sector to move away from structural impediments towards values alignment,” it said.
“With respect to financial planning, our ambition is that life risk advice will eventually move from conflicted remuneration structures towards structures that align the interests of advisers and clients. The recent Life Insurance Framework implementation is a pragmatic step in this direction.”
