Retail insurance ‘collapse’ imminent: Adviser body

In a communication to MPs on Sunday, AIOFP executive director Peter Johnston pointed to recent Plan for Life data indicating an 8.1 per cent year-on-year decline in new risk income sales, and a 9.2 per cent decline in individual risk lump sum sales in the 2020 year.

Mr Johnston said current declines in the risk market were “not sustainable” and could lead to the “collapse” of the retail life insurance channel.

As ASIC gears up for its review of the LIF commission settings in 2021, Mr Johnston said politicians were showing more interest in being educated about the impact of commission reductions, and their possible removal, on the life insurance market.

Mr Johnston said the development of the LIF had been driven by “institutions wanting to cut advisers out of the consumer relationship to sell them inferior insurance cover via telemarketing [and] online”.

“Thankfully commissioner Hayne exposed the sinister side of direct insurance marketing, resulting in the institutions leaving the industry, but unfortunately the LIF is still with us,” he said.

More broadly, Mr Johnston said the cost of advice had escalated due to “heavy, unfair and unnecessary compliance burdens placed on advisers that consumers are paying for”.

“Poor institutional behaviour within their financial advice culture exposed in the royal commission, combined with $40 billion worth of failed funds managed by them since the 1980s strongly suggests the financial adviser community has been unfairly dealt with whilst others avoid accountability,” he said.

Mr Johnston said the non-aligned advice community was in “desperate need” of political assistance to “eliminate the unintended consequences” of excessive regulation.