Do life insurers’ direct sales models breach remuneration rules?

It will be years before the Australian Securities and Investments Commission (ASIC) will know whether its changes to life insurance remuneration have actually been effective.

But it has signalled to a Parliamentary Committee that the major insurers providing life insurance via direct channels are now under scrutiny including the possibility that some of their business models could breach regulatory requirements.

ASIC has used documentation provided to the Parliamentary Joint Committee on Corporations and Financial Services review into the life insurance industry to acknowledge that because the Life Insurance Remuneration Act does not commence until 1 January 2018 it will not be able to determine whether the changes are “effective in achieving the objective of better aligning the interests of consumers with those selling the life insurance for a number of years”.

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“The Government has asked ASIC to conduct a review of the reforms in 2021. We will be collecting data and conducting surveillances on advice, and have a current project on sales of life insurance through the direct channel – all this work will assist in establishing whether the reforms have been effective in achieving their objective,” the regulator said.

“Different models of distributing life insurance exist, especially in the direct channel, and we are continuing to assess different types of distribution methods through ASIC's current work on direct sales of life insurance,” it said.

ASIC said that as it worked through the information it was receiving about different models of distribution, it believed it might find models that came within the reforms, some that were not captured, “and some models that seek to circumvent the reforms”.

“As yet, we do not have enough information to make an assessment. We will continue to monitor the industry, and consider what, if any, action might be appropriate if we identify any issues,” the regulator said.

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Just impose the Know your Client Duty and the Best Interests Duty on all sectors of the Financial Services Industry.

This goes a long way to ensure positive client outcomes and protect clients from making uninformed decisions. Oh but wait....... It will hurt the profit margins of banks/insurers. Politicians and therefore ASIC cant have that.

How about the superfund distribution of life insurance? You know the insurance that is offered to every single member and the super fund gets paid for placing it with no paperwork at all? Or the fund managers kickbacks to the funds for using them to manage the members money? Talk about confliction, this is where it was invented, ask the FSC about it they wrote the book on it.

‘It will be years before the ASIC will know whether its changes to life insurance remuneration have actually been effective’. Welcome to the world of advice. If your advice turns out to be wrong (with 20/20 hindsight) & your recommendations fail can I take you to a ‘free’ complaints service, paid for by a financial levy deducted from the salaries of bureaucrats?

Good point Runaway Roger. The planners at Storm would have been applauded and awarded prizes for leveraging up and maximising profit had it not been for the markets and GFC. But as it stands, they bore the brunt of the penalty whilst CBA got off pretty much scot free as usual.

When is ASIC going to get it?? They have now admitted that churn was not an industry issue after the dodgy FSC gave them the data post the LIF being passed.
Now the same dodgy FSC members are all increasing the rates on existing customers premiums and cutting the premiums for new business. This will mean customers will have to move for a better rate. SO THE DODGY FSC MEMBERS ARE NOW ENCOURAGING CHURN through this new practice that didn't exist before.
This is the dodgy practice by the FSC members that ASIC needs to be investigating.

ASIC won't have to wait years to see if the LIF legislation has advisers and consumers align their interests.
No one starting out in the life insurance business will write business, even @ 80.0% upfront commission with a 2 year clawback of 65.0% of what was paid, even in the 23 month, on termination.
No one can afford to write life insurance business when upfront commissions are reduced to 20.0% commission and no doubt with the same 2 year clawback.
So what's left, 30.0% level commission ?
OK lets look at that as a viable business option.

Advisers will need to write more than 3 times as many applications each year to equate to what they do today.
Good luck with that !
But hang on, one of the reasons the upfront commissions were introduced by the life companies was to compensate advisers who put in the time and energy to cover their expenses as a result of assisting with client claims and more importantly to cover expenses for the time spent on contracts that did not complete.
Finally when the very few life companies that are left offer the same inferior policies as each other, what benefit is there to the consumer ?

OK, we can advise on the appropriate sum insured but if we do that and suggest the client have a minimum $3m life/TPD cover to cover debt and family liabilities, $1m of Trauma, and IP to cover 75.0% of existing income,... just in case, won't we all be seen as commission hungry advisers by the bureaucrats ?
Back to square one !!!

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