Removal of LIF will see drop in number of retail life insurance policies: FSC

The Financial Services Council (FSC) has reiterated its push for the life insurance framework (LIF) to be retained by Treasury following December's Quality of Advice Review (QAR).

In its submission, the peak body recommended LIF be retained "because it has been successful in managing potential conflicts between advisers and consumers by providing an affordable mechanism for consumers to get personal advice on life insurance".

This week, FSC policy manager Matthew Hawkes has again called for its retention and argued it has improved the quality of advice through less re-broking, a decrease in clawbacks and an increase in the duration that consumers retain their policies.

In an article published on FSC's website, Mr Hawkes said LIF has also helped address the issue of the rising cost of advice and consumers' access to advice.

"...LIF helps consumers get affordable personal advice about life insurance by allowing the cost of the advice to be included in the premium and spread over the term of the policy. This is important for people who cannot afford an up-front fee for personal risk advice, such as people getting their first mortgage or starting a family. The life events that trigger the need for life insurance for the first time are often the very reason why people cannot afford an up-front fee," he wrote.

Mr Hawkes continued: "... if the LIF remuneration basis were removed, this is projected to mean a 28 per cent reduction in the number of Australians who have retail life insurance policies by 2026.

"Not only would this mean Australians are less adequately insured, it would also put upward pressure on the cost of life insurance at a time when household budgets are already under pressure."

Mr Hawkes' comments come after a survey conducted by ClearView earlier this year found that LIF had little impact on advice quality.

The survey, conducted with ClearView members between 20 April and 23 May 2022 to support its ensuing QAR submission to Treasury, found that LIF had “no material impact” on advice quality and actually hindered advisers’ ability to serve clients.

Just 5 per cent, said the LIF, introduced in 2018, did have a material impact on advice quality.

Appearing on a new episode of the ifa Show podcast, Mr Swanson said that the view by the survey respondents was “a fair call”.

“My view is that's quite understandable too, because I don't actually think the LIF framework actually does have much impact on the quality of advice per se,” he said.

“I think there are other issues at play.”

Listen to the full podcast with Mr Swanson here.

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.