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a result, consumers remain in financial products that suffer from a higher cost base and carry operational risk from outdated technology and products that are difficult to support,” the FSC said.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