ISA rejects life insurance reforms as inadequate
Industry Super Australia (ISA) has rejected the proposed hybrid risk commission model announced by the Assistant Treasurer Josh Frydenberg and claimed there was no evidence that commissions made life insurance products or advice more accessible to consumers.
In a statement released following the announcement by Frydenberg, ISA Director of Public Affairs Matthew Linden said the proposal, led by industry associations, fell short of the recommendations made in the Trowbridge Report, which had been initiated by some of those bodies.
ISA also claimed the proposal did not tackle the problems around conflicted advice detailed by the Australian Securities and Investments Commission (ASIC) in its report from last year and left upfront and ongoing trail commissions on the table with the potential for conflicted and poor advice.
Linden said while the proposal would tackle the most serious cases of churn it did not go far enough in tackling the issues raised by ASIC.
"While we support the proposal to ban volume rebates (wholesale commissions) and put in place clawback provisions, the proposals do not go far enough given the significant detriment to consumers identified by last year's ASIC report on life insurance" Linden said.
"The proposal leaves in place commissions as the dominant remuneration model in life insurance advice. While a 60% commissions are lower than current levels, they are still going to lead to biased advice and poor consumer outcomes."
"There is no evidence that commissions make life insurance advice or products more available or accessible but there is plenty of evidence that they lead to poor quality sales driven advice which is detrimental to industry super fund members."
Linden said ISA was still concerned that superannuation was being used to pay for personal life policies that were based on commissions instead of group life policies inside super and "this regulatory arbitrage would be easily solved by banning commissions on personal policies paid from super and requiring fee for service advice".
"While it is laudable that the Assistant Treasurer has sought to make the industry responsible for tackling these serious structural conflicts, a transition towards phasing out commission-based remuneration is the only long term sustainable solution compatible with a professional financial advice industry."
AUTHOR
Jason Spits
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