More than a third of the advice received by consumers relating to life insurance has not been appropriate according to a review conducted by the Australian Securities and Investments Commission (ASIC).
ASIC said it had reviewed more than 200 advice files from a range of Australian Financial Services Licensees (AFSL) and found that 63 per cent were compliant but were concerned the remainder did not comply with the laws relating to appropriate advice and prioritising the needs of the client.
The regulator stated that high up-front commissions were a leading cause of inappropriate advice and also played a large part in recommendations to switch products.
Concerns were also raised at the high lapse rate for many policies, an issue which ASIC said its report confirms, which was related to the affordability of insurance with the regulator asking the life insurance industry to ensure that industry practices were sustainable.
ASIC deputy Chairman Peter Kell said the one-third failure rate was too high and it would be taking further action in some cases.
"This is an unacceptable level of failure, and the life insurance industry is now on notice to lift standards and professionalism. Both insurers and advice firms need to work on delivering a consistently better service for consumers," Kell said.
"Life insurance is a key product through which consumers manage risk for themselves and their families. It is therefore important that both the products and the advice meet the consumer's requirements."
"The industry as a whole needs to consider how remuneration and compliance practices can better support good quality outcomes for consumers", Kell said.
"Where inappropriate advice was provided we are considering enforcement action or other regulatory action."
