The Australian Securities and Investments Commission has signalled it is prepared to wait until after its review of the Life Insurance Framework in 2021 before pressing for the removal of commissions-based remuneration in the life/risk sector.
In a submission filed with the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the regulator has expressed its ongoing concern about the impact of commissions, but indicated its willingness to allow the LIF implementation to run its course.
It said that since its initial report on the issue, poor quality advice on life insurance has continued but “that the limitations on life insurance commission have, however, only been in effect since 1 January 2018”.
“ASIC will conduct a post-implementation review in 2021 to assess the impact of the reforms,” it said. “Collection of data to inform this review has commenced.”
“ASIC considers that if no significant improvement has been made on the findings reported in ASIC REP 413, 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”.
“As a preliminary observation and noting that ASIC’s review is due only in 2021, in ASIC REP 587 ASIC observed a link between incentive schemes and conduct at point of sale,” the ASIC submission said. “With one exception, those firms with the incentive schemes that had the most significant conflicts of interest were also the firms who engaged in pressure selling and other practices where a sale was prioritised ahead of the needs of the consumer. Findings of this kind suggest that the ban on conflicted remuneration should be applied to life insurance products.”
Comments
Irrespective of any findings relating to the impact that recent changes have had on the insurance industry, the biggest problem is that an alternative remuneration structure can't be agreed on or found. This is because the only alternative is for the client to PAY for insurance advice going forward. In my opinion, it will take many years possibly even decades before the majority of those looking to implement life insurance cover accept the fact that it will cost them to obtain advice in this area. Reducing upfront commissions to 60% is the best solution for both client and adviser, so removing this structure will only lead to increased government support and benefits for those impacted by serious illness, injury or premature death. Let's not destroy and industry that has been around for well over a century!
The alternative is to charge our insurance clients a $50,000 fee from the insurance claim benefit, as many lawyers are charging right now to insured clients of Industry Super Funds. These lawyers are advertising non-stop on rural TV channels. The fact that no other nation in the entire world has ceased commissions for insurance, including ongoing group insurance commissions to Union Super Funds, seems to have escaped the attention of ASIC
So ASIC have a pre-determined outcome of how they want the course of events to take place and are predicting that commissions should be banned.
This is simply incredible from the regulator.
The level of bias and misunderstanding surrounding this matter is negligent.
ASIC Report 413 took a sample group of only 202 advice files and made a determination in regard to an entire industry.
Secondly, ASIC found that when any other form of commission payment was received other than the then Upfront model ie. Hybrid (80/20) or Level (30/30) commission options, the advice success rate was 93% with only a fail rate of 7% !!!!!
The current reduced LIF Upfront/Ongoing commission model is at the previous Hybrid level option and the Level commission option still exists, so how does ASIC come to a conclusion that a previously reported 93% advice success rate is no longer acceptable and that life risk commissions should be banned following their report in 2021 that hasn't been completed yet. ??
This indicates that ASIC are pushing to ban commissions irrespective of whether evidence would support it or not.
In addition, it places doubt over whether the results of a future report will be manipulated in order to suit the intended outcome.
It has long been argued that ASIC Report 413 was a study that ASIC needed to have in order to impose pressure to legislate change to commissions.
Will ASIC be seeking to ban all risk commissions including new and existing business renewal commissions ??
If it is the latter, then it may be considered an acquisition of property which would need to be acquired on just terms and compensation paid to advisers and licensees.
In relation to the assessment of current risk insurance, ASIC Consultation Paper 245 refers to the monitoring of insurance policy cancellations. In Section D(1) (a) (iii) , it states " how many policies have been exited (and the reasons for the exit)".
Well, the only way the accurate reason for a policy cancellation would be for the insurer to contact the relevant adviser
and determine if the client initiated the cancellation with no adviser intervention or if the client instructed the adviser to cancel a policy. In addition, it needs to be determined whether the reason for cancellation was in relation to factors such as unsustainable premium increases such as 25-30% in one alone.
I suspect that all policy cancellations are presently being reported to ASIC as policy lapses irrespective of the length of time the policy has been in place or the accurate reason behind the cancellation.
I suspect that in 2021, ASIC will state there has been policy lapse information gathered and this will form the basis of their recommendation for the banning of commissions.
I do not think that any Life Insurance company is spending any time at all accurately reporting the reason why policies are cancelled and are not contacting advisers to ascertain the reason and recording same.
The agenda being pushed is destructive, damaging to the consumer, damaging to the industry and will be based on the manipulation of data.
Don't forget also that the 202 files ASIC reviewed were from advisers they were already targeting and this was at a time when ASIC wanted more funding. Report 46 was just a total con job by ASIC.
So how exactly will they measure the success of LIF? It was designed to tackle widespread churn, which we now know was a myth. Will they conduct another investigation and use ASIC Report 413 as the baseline? That could be tricky given it was limited to a small sample of suspected churners, rather than a cross section of the adviser community. Hmm. Putting this in the too hard basket for another 3 years is probably a good idea!
Again, a regulator sticking its beak into and setting Government policy. How's about policing the current laws for a change.
Unfortunately Tom, death is never premature, but it can be untimely.
The writing on the wall is that advice for insurance related advice will go to a User Pays FFS model. The challenge will be convincing a client to now pay for a service that was previously free.
This will happen, no doubt. However the ongoing effects on the value of FP books of business will be quite catastrophic.
At least Direct Insurance sales are being killed off thanks to the BRC.
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