Frydenberg’s Trowbridge warning - self-regulate, or else
Assistant Treasurer and Minister for Financial Services, Josh Frydenberg, has sent the life/risk industry a thinly-veiled message — self-regulate off the back of the Trowbridge Report or expect to lose the opportunity and face Government intervention.
The thinly-veiled message is contained in a newspaper column written by Frydenberg this week which traverses the various recommendations flowing from the final Trowbridge Report and before ending on the following note:
"While Murray's Financial System Inquiry and the Trowbridge report provide the government with a number of options for reform, the extent to which government intervention is required will depend ultimately on the industry's own actions.
"It is up to the industry now to restore public confidence before time for industry leadership runs out."
The minister also made clear that the Government held the view that reform of the life/risk sector was needed saying, "it has become clear through a series of reviews that reform in the sector is needed".
"Some of the reviews have been initiated by the government, namely those undertaken by the Australian Securities and Investments Commission (ASIC) and the financial system inquiry, while others have been commissioned by the industry itself, namely the recently released independent report by John Trowbridge, a former member of the Australian Prudential Regulation Authority."
"The most significant concern revealed by the reviews is that the upfront commission model has driven a misalignment of interests between insurers, the adviser and the client," Frydenberg wrote. "Incentivised to encourage clients to regularly change policies, advisers in the current system are said to be creating significant churn in the market, which ultimately leads to higher fees. This in turn exacerbates the growing problem of under-insurance."
The minister's words have come at the same time as life/risk advisers have been urged to respond to the Trowbridge recommendations and to lobby hard to ensure appropriate commercial outcomes.
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