Insurance gap attributable to cost of advice

Financial advice is not as affordable as it should be and this is mitigating against closing the insurance gap in Australia, according to the chief executive of Tower, Jim Minto.

Minto told the Investment and Financial Services Association national conference in Brisbane that the dictates of Australia’s Financial Services Reform Act (FSR) meant that the necessary advice could not be provided to a significant sector of the population.

“It is ironic that while research continues to highlight the underinsurance gap in Australia at present, fewer people may be able to address the issue under current advice requirements,” he said.

Minto said in these circumstances the underinsurance gap was a social policy issue that needed to be addressed.

“With high levels of mortgage debt and personal debt, many families today are dependent on two incomes and, therefore, will suffer both financially and personally if something was to take one income out of the equation though death or illness,” he said.

“In this situation, it often means the family will have to suffer a sharply reduced standard of living, they may even have to sell their home or, ultimately, fall back on the Government for assistance.”

Minto said under current FSR requirements for full advice it is often only affordable to those who are probably already financially astute and have a higher net worth.

“When something goes wrong, these people often have more financial options to deal with the situation,” he said.

“However, middle Australia often misses out on being able to buy simpler products by not being able to obtain quick answers to often basic questions without going to the costly full-advice model. There is nothing between the general and the full advice requirements.”

Minto said the problem had been created by a very complex model that was theoretically pure but not accessible by all.