‘Jury’s out’ on LIF, industry bodies say

Speaking on a panel at the FSC Life Insurance Summit this week, FPA chief executive Philip Kewin and FPA chief executive Dante De Gori focused on choice around life insurance commissions, for both consumers in choosing how they pay and for advisers in deciding how to structure their businesses.

Mr De Gori said the framework is hard to consider in isolation, noting the “jury is still definitely out” on its success.

“We have the data, we know that businesses are reducing inflows and premiums. Advisers are telling us businesses have changed as a result of this,” he said.

“Without question, you halve the remuneration model of a business overnight, that’s going to make changes. It is interesting, some of the data we’re seeing about how advisers have actually adapted – some have taken that reduction and not looked at other avenues or other options… I don’t know how sustainable it is.

“But without a doubt, the fact that there is still a commission framework, gives choice to both the consumer and advisers. I think the jury’s out as to whether the framework is successful.

“Ultimately, at the end of the day, we’ll see that in the review.”

On the weekend, both industry bodies along with a number of major life insurers declared they had teamed up for a new campaign calling for a reset of policy settings around insurance advice.

Mr Kewin signalled on Tuesday that the joint effort will work to prevent any further changes to commission levels.

Mr De Gori commented that the AFA and FPA are considering the metrics for success of the LIF in their joint taskforce.

“There’s a question that’s been asked in this forum about whether commissions should stay, and I think for me we have to look at it the opposite way,” Mr De Gori said on the FSC panel on Tuesday.

“It’s about choice for consumers and it’s about choice for advisers, it’s about how they want to structure their business. And if there were to be drastic changes to the life insurance framework going forward, then what you’re really doing is removing choice.”

Mr Kewin echoed Mr De Gori on choice, noting Australia is “one of the few markets in the world where remuneration is regulated”.

He also referred to the framework’s original three objectives: lower lapse rates, reduced premiums and improved customer outcomes.

“They were the three objectives, but to Dante’s point you can’t look at it in isolation and we know we haven’t achieved that,” Mr Kewin said.

“But is that primarily due to the life insurance framework or is it due to the much broader issues impacting the market?”

Mr Kewin noted the royal commission response to see how the process for rolling out the LIF would play out, before reviewing it in 2021, was “common sense”.

“But clients want to have the choice as to how they pay for their advice, whether it’s commissions, fees or a combination or both, but they should be given the choice,” he said.

“And given the right disclosures, which do exist in this country and our framework, people know what they’re getting in for and how much it’s going to cost them and how they’re going to pay it.

“If you’re a holistic adviser and you’re looking at all of the different mechanisms, you’re looking at investment portfolios and things like that, yes you can bundle up a fee, but if you’re a risk specialist … I know advisers have done it on an hourly rate. If you want to pay a fee because you don’t believe in commissions, fine … they’ll list it out and charge the hourly rate and give it to the client and the client says, ‘I’ll take the commissions fees’.”

ASIC is due to review the framework in 2021.

Research commissioned by CALI (Choice and Access to Life Insurance), which included representatives from four major life insurers, found that 20 per cent of 25-34 and 35-44 age groups were now considered underinsured.

Mr Kewin has previously told ifa that the findings have shown LIF had failed on its stated policy aims, including improving consumer outcomes.