Rid life/risk of legacy issues and save millions

27 November 2017

The insurance industry could save in the region of $94 million if the Federal Government were to clear the way for the rationalisation of legacy products, according to research undertaken by the Financial Services Council (FSC).

The FSC has provided the research outcome to a Parliamentary Committee arguing that a comprehensive product rationalisation regime would provide better consumer outcomes by creating greater efficiency in the industry and access to more modern and relevant offers for consumers.

It said the current mechanism for rationalising managed investment schemes, life insurance legacy products and other related products or structures was too difficult and expensive.

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“As a result, consumers remain in financial products that suffer from a higher cost base and carry operational risk from outdated technology and products that are difficult to support,” the FSC said.

The FSC said it had surveyed members to develop conservative estimates of the benefits that an effective product rationalisation regime would deliver in the near term with the outcome being that:

  • 38 individual IT systems could be closed, of 79 legacy IT systems across the sample;
  • 286 life products and 77 managed investment schemes could be closed; and
  • $22.6 billion in funds under management could be transferred to contemporary products.

The FSC told the Parliamentary Committee that its members had forecast that, through these changes they could achieve $94 million in cost reductions over the near term through a staged rationalisation program, which would result in a more efficient and sustainable industry.

The FSC pointed out that the industry had been lobbying in pursuit of the rationalisation changes since 2005 but the problem continued to exist.

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More corruption from the FSC who would want to shut down products that have a higher chance of paying claims and replace them with new products that have less chance.

How typical of the FSC members.
Let's get rid of the old legacy products that offer better insurance benefits than the new inferior products.
If the Parliamentary Committee, was fair dinkum, they'd be asking those members of the
FSC , what benefits would be lost by consumers who have retained those legacy products for a very good reason.
Now there's an active bit of "churning" by the life companies, and neither ASIC nor the government even blink !!!!

FSC are not actually taken seriously by anyone are they? The heading should read. Get rid of Legacy Products because FSC members will make $94 million more.

As an adviser i have come across these legacy products many times. The general rule is - RETAIN THESE LEGACY PRODUCTS as we cannot find a better option. If i had changed these clients from the Legacy Product to something else for a quick dollar, Id lose my FP license for not acting in the best interest of my client.

Please FSC, I would like to know how removing these Legacy Product offerings and getting parliament to void contracts for you will benefit the clients who have them?

Please explain how a Legacy Life Insurance policy with a guaranteed payout upon death and premiums waived after age 65 can be replaced with one of your current Life Insurance offerings.

This Royal Commission is going to be so interesting. FSC members will all have to retire on their private islands.

I like everyone else on here am not a fan of the FSC but in this instance I think they are right. The other comments on here talk about legacy products offering better cover/features than current one's - I've never come across an old life product that is anywhere near comparable to what is offered these days. Whole of life policies, endowment products, children's saving plans....all of these products are rubbish but the problem is they often include a huge exit fee that prevents people moving out of them. If it truly is government regulation that is holding up the winding up of these products then that's very frustrating, particularly for the policyholders......although you can't take what the FSC say on face value can you.

The FSC is just why there will be the inevitable Royal Commission into banks and why insurers should be included. You have customers who have bought products in good faith and loyally paid their premiums for years only for the FSC to want to legislate being able to change a legal contract for their own profit. I wonder how much lower the FSC can stoop but I don't think anything is out of bounds for them when it comes to profit.

There are two big takes out from this article.
1/ The FSC is endorsing a massive churn ,the hypocracy is obscene, and obvious to anyone who cares to look at what they are supporting .You can't have a rule for them and a different rule for advisers.
2/ Many people who bought these products in good faith may now no longer be insurable ,does the FSC support throwing these policy holders under the bus ?Just so the members firms that pay the FSC can get legacy products and the contingent liability off the balance sheet .
Brett H you say these products are rubbish ,explained that to someone who is uninsurable and the policy they own is the only solution to support a family .
We will be keeping a very close eye on this issue FSC don't think you can slide this thru unnoticed .

Hi Churner, I think you misunderstand what they are talking about - they are not saying "we've got these clients in old legacy products so let's wind them up and leave the client in the lurch". They want to wind up the products but transfer the existing policyholders to newer/better products. These old products have very complex tax structures that the FSC members want the Government to be flexible on when winding them up. It's a win win, the client gets a modern product and the insurer reduces costs by moving from outdated products and systems.

moving from outdated products and systems.!

so simple ,pure and innocent when you say it like that .not like a giant churn at all.
When a financial adviser engaged with a client to attempt the same outcome for the client , better terms and conditions with a lower cost ,because they were/are acting in the clients best interests.Your friends at the FSC cried "CHURNER" and the result was the LIF.So continue with your lobbying ,but now that a royal commission is likely to happen ,lets hope your FSC is exposed for what it is .meanwhile we will continue to advocate for consumers and will be watching to see if you slide this under the door.

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