Limited risk APLs are nonsensical

Life insurance fulfils a vital function in society but it’s generally accepted that many Australians don’t have the cover that they or their families need. Group insurance arrangements within superannuation are part of the problem.

Under the current rules, MySuper funds are legally required to provide life and TPD insurance on an opt-out basis.

However, group TPD definitions and conditions are becoming narrower, severely limiting the ability of members to claim. Soon TPD in super will be practically worthless to the majority of members, if not already.

Recent research by SuperRatings suggested that valid group claims were being declined simply because some super funds weren’t actively monitoring claims but relying on their insurer to manage the process and make vital decisions.

A recent ASIC report found a far higher percentage of group insurance claims are declined compared to retail claims made through financial advisers. The Productivity Commission’s initial report on the efficiency of the super system identified group insurance as “a key area of angst and poor experiences by members”.

We believe group insurance should be on an opt-in basis and where there’s poor public policy leading to sub-par client outcomes, ClearView will continue to lobby governments on behalf of advisers and clients to ensure sensible reforms.

Consequently, I had the privilege of being invited to appear before the Senate Joint Committee on Corporations and Financial Services on 24 February to talk about the ills of group insurance and the importance of open Approved Product Lists.

The media (including this publication) covered part of my presentation but focused on my more controversial comments around to the industry’s “high degree of mediocrity”, “glaring conflicts of interest” and the comparison of shelf-space fees to “bribes”.

My main point was that financial advisers today are better educated and more professional than ever, yet many are unable to utilise their experience and exercise their professional judgement to choose the best life insurance product for their clients, due to the restrictive nature of some dealer group APLs.

Open APLs are critical if the industry is to better manage the conflicts inherent in the vertically integrated model, remove the product-flogging stigma, gain the trust of consumers and establish itself as a bona fide profession.

But progress in this area is unlikely in the absence of regulatory action because of the vertically integrated nature of the dominant players, which use restricted APLs to control and direct flows into their own products.

It seems counterintuitive to ask advisers to be degree qualified, meet continuous professional development obligations and professional standards but dictate to them the products they can and can’t recommend. That’s why ClearView’s aligned dealer groups have access to all 11 APRA-regulated insurers in the market.

We recognise that our advisers are experts in their field, and we also understand that our products won’t be the best for every circumstance.

I read with interest some of the comments on this website, relating to the article "APL shelf space fees ‘a straight bribe’, PJC told". Most of them were positive and supported open APLs, but there was some opposition.

In response to a comment made by Alex the accountant that despite having 100 per cent open risk APL, ClearView’s aligned advisers are still ‘encouraged’ to sell in-house product of the $224 million in premiums under advice across Matrix Planning Solutions and ClearView Financial advice only $64 million is in our LifeSolutions product.

In other words, over 70 per cent of policies written by ClearView’s aligned advisers are placed with external third party insurers.

(On the flip side, around two-thirds of all people who seek advice from an institutionally aligned dealer group are sold in-house products, according to Roy Morgan.)

Furthermore, our aligned advisers represented only 28 per cent of new life sales in the half-year to 31 December 2016, with the bulk coming from the IFA channel. Our flagship LifeSolutions product is currently on the APL of 293 boutique licensees, but despite strong IFA support and the fact a recent ASIC report found our decline rate is considerably lower than the industry average, it isn’t on the APL of a major institution. Part of that is because we refuse to pay shelf space fees.

One comment on this page purports that shelf space fees are a valid form of compensation to institutions and aligned dealer groups for using their vast resources to build up their ‘distribution networks’. I’m sure all client-centric, professional advisers operating their own business under an aligned advice brand will find that concept as deplorable as I do.

Another area ClearView is passionate about is partnering with advisers to upskill and evolve their businesses in preparation for the upcoming remuneration changes under LIF. Today, we have launched a white paper titled, What’s old is new again, which can be downloaded here https://www.clearview.com.au/ebook/white-paper

Simon Swanson is the managing director of ClearView.