Time to reintroduce LIF, FSC says

Commission Win (Across the Pond !!)
NZ advisers, insurers find common ground on commissions

16 May 2016

New Zealand advisers and life insurers have rejected changes to life commissions in submissions to the Government’s financial advice inquiry.

The Boutique Advisers Alliance (BAA) says restrictions or bans will exacerbate the underinsurance problem.

“In the case of insurance, limiting or banning commissions will have a devastating effect on the availability of advice,” the industry body warns in its submission to the Ministry of Business, Innovation and Employment.

“Numerous regulatory changes globally to this effect have shown this to be the case.”

The American Income Life Insurance Company submission also rejects a ban on commissions.

“In the absence of commissions, the number of insurance agents or brokers would necessarily decrease, to the detriment of consumers,” it says. “New Zealand has an underinsurance problem, which would be exacerbated if commission-based sales were prohibited.”

It says consumers are reluctant to pay for advice, particularly on insurance.

Suncorp Life also rejects commission changes or a ban.

“It is too difficult to enforce and will end up costing consumers,” its submission says.

“There are issues in identifying so-called soft commissions and other benefits. Our view is these benefits can significantly influence advisers’ sales practices, in conflict with the interests of consumers.”

However, AMP backs restrictions on life insurance commissions.

“While we support some commission control, such as removal of soft commissions and volume aggregation, and would support some regulation that would prohibit disproportionate initial commissions, we accept this position may not be widely supported,” it says.

“An alternative approach, and in the interests of ensuring conflicts of interests are appropriately managed, is to ensure advisers must be able to disclose their remuneration to a precise dollar amount.”

AMP says commissions such as overseas trips for selling a certain number of policies sold should be banned.

In Australia it has been argued that restricting life insurance commissions would stop churning.

The BAA argues this is wrong, and a better solution would be new rules making advisers give reasons for moving policies.

The AMP Advisers & Adviser Businesses Association says rather than applying a blanket ban on churn, it should be addressed on a case-by-case basis.

“The suppliers want new business and they are not questioning the business,” its submission says. “The replacement business forms go to the new supplier and a copy should also go to the existing supplier, so they can challenge replacement. There needs to be a demonstrable benefit to the client and this should include premium savings.”

The FSC would be keen to see the re-introduction of the LIF legislation as any delays will allow increased scrutiny of the supposed ‘consumer benefits’ referred to by ASIC and the media. Nope, still can’t find any though of course the FSC members will definitely achieve substantial benefits for their shareholders.
Additionally advisers and their clients will become increasingly aware of the little carve out the FSC is trying to engineer – with the regulators blessing – on direct insurances so they can still receive full upfront commissions with none of the consumer protections provided to intermediated clients under Section 945A regarding the appropriateness of the advice and Section 961B which relates to the best interests duty. Additionally the consumers may work out the direct insurances they see advertised continually are substantially more expensive that intermediated insurance with none of the benefits of advice and largely underwritten at claim time where more than 40% of them are denied (hard to verify as it is likely to be more but the regulator has not asked direct insurers for these statistics and they aren’t about to publish them voluntarily!). Another great FSC benefit but would not seem good for the consumer
Last but not least they would not like the ACCC to look to hard at their behaviour as it may start to question the legality of their approach.
Looking forward to some solid questioning of this bill by Bert van Manen after his hard fought and deserved win in Forde – no doubt the FSC is very disappointed to see his return??

I challenge you Sally Loane to clearly explain why there are not “misaligned incentives” from the FSC insurance company membership driving the relentless push to implement the proposed LIF. FSC members who produce Life Insurance product and derive profit from the distribution of Life Insurance products are competitors to the independent financial advisers through their direct insurance channels and the large group insurance market of which the FSC have underhandedly sought to have carved out of the LIF legislation despite Kelly O’Dwyer stating there would be no carve outs.
These FSC member insurance companies know that if they are to be paying the independent advisers less and retain the same or increased premium cost for their product, their bottom line profit will increase. In addition, they also know that if the numbers of independent advisers become less, the promotion and growth of their direct insurance models will again deliver increased profits. These are 2 examples of misaligned incentives. Incentives that are driven by self interest and gain and not by the benefit and best interest of the consumer.
The LIF is meant to deliver increased and beneficial consumer outcomes.
One of these beneficial outcomes would be the ability of the consumer to secure life insurance products at a reduced cost, thereby increasing the financial security of Australians, reducing the reliance on the social security system and helping to reduce the underinsurance issue.
I challenge you to have the courage to put the following question to your FSC insurer membership and to publish the answers.
” Following the implementation of the Life Insurance Framework legislation, will the cost of advised Life Insurance product premiums decrease or increase.” ?
YES or NO ?
This is NOT about the cost of advice…..just the cost of the premium charged by the insurer.
When Sally Loane you have the courage and fortitude to ask your members to provide an answer to this question and allow others to assess the response, then you may have a right to pursue your agenda.
Until then, your empty rhetoric is so obviously conflicted and without substance or evidence.

Shame on you Sally Loane, amplify and clarify, what are the better consumer outcomes? a bland statement with no supporting fact. I completely support David Bourke’s comments re the process we now have to go through….again.

and why don’t you, Sally Loane, “prove trust in life insurance” by answering the questions put to the FSC by the LICG ! – your silence is deafening

What a joke the FSC is Sally Loane. You say the FSC wants to “address misaligned incentives and prove trust in life insurance” when the FSC is the main cause of the lack of trust in the insurance industry.

The FSC members creates legacy products, cranks up premium rates on those legacy policies (sometimes around 40% in one year) and then complain when clients scream blue murder and cancel policies or demand cheaper premiums be accessed. And the insulting bit is you then blame the advisers for a lapsing policy that you caused to happen.

Absolutely disgraceful behaviour by the FSC.

It is not surprising that new business risk sales are reducing. Wait till the lower commission rates kick in. The FSC might just get what it deserves.

How about you provide the proof to the LICG as requested multiple times that consumers will be better off and not just the FSC members and their profit margins.