Advisers and the CommInsure scandal

The last few years have seen unprecedented scrutiny of our industry, with most of this being directed towards advisers and very little of it tackling the issues of vertical integration or the culture within large financial institutions.

Just when we thought that we knew what form the Life Insurance Framework was going to take, whether we like it or not, the CommInsure scandal has reared its head – perhaps we will now see further changes, although I sincerely hope so.

Dr Benjamin Koh – a former chief medical officer of CommInsure turned whistle blower – in a recent interview with Bill Woods on 2UE spoke about the alleged problems within CommInsure, but was quick to point out that financial advisers have unfairly copped a lot of blame for recent events and made a point of stating that advisers are excellent advocates for their clients.

This is because advisers are the ones who understand the complexity of the claims process and can guide clients through it. He noted that the poor families who have been affected by the CommInsure scandal seem to be mostly caught out by the insurance offered by their industry super funds, or purchased cover directly.

A perfect example of the blame being unfairly targeted towards advisers is the chief executive of Industry Super Australia, David Whiteley, who used the negative media attention to call for a ban on commissions citing a correlation of poor outcomes and the payment of commissions. The problem here is the complete opposite, these clients received no advice, in fact the super trustees ultimately let down their members, but it is their members who are left paying the ultimate price.

While the large institutions try to distance themselves from the acts of individuals, Dr Koh made the comment that research shows that if an employer creates an environment where it is not possible to act ethically in order to survive, the issues lies entirely with the organisation, much the same where a company requires its truck drivers to meet impossible deadlines, but then blames the individual for their poor behaviour when they are caught speeding.

Unfortunately, with our current superannuation system that usually includes a form of default insurance cover, the ease of access to inferior insurance sold via direct offerings and the average Australians view, that “it’ll never happen to me” combined with the tightening of TPD definitions for group insurance policies over the last few years, we are likely to see more of these cases over the coming years. Left unaddressed this will only lead to a complete loss of trust in what is the promise of insurance (if the everyday Australian isn’t leaning that way already).

Only a licensed adviser has a best interest duty and the skills and knowledge to tailor the correct insurance to their client’s needs. They are also the best person to assist a client at claim time ensuring the process is efficient as possible and that the client receives their full entitlement.

Perhaps rather than seeing this as simply another bad news story about the industry, this is the example we have needed to demonstrate to policy makers the problems that occur when clients have no advice and no advocate at claim time. We have a best interest duty and a strict licensing regime governing the provision of advice. There can be no deflection towards advisers, it’s time to focus on what advisers have been saying for years: the government needs to turn its attention to the creation of a mandatory code of conduct for all insurers that it not be written by those who it is meant to govern.

In an ideal world, insurance should only be available after having obtained advice that is not provided by a company or individual working for a product manufacturer. With all the changes to our industry, the government should champion our new standards and the value of advice along with our best interest duty, only then are we going to see some faith restored in the promise of insurance. When the question of a disputed claim arises in the future with a claimant blaming the insurers fine print, the first question someone would ask would be: “Why didn’t you get advice?”

Katherine Hayes is a director at Tiffen Insurance Services