Risk insurance reform top priority for AIOFP

In an email to shadow treasurer Angus Taylor, seen by ifa, AIOFP executive director Peter Johnston said he put forward the association’s main concerns in hopes of reaching a “bipartisan outcome” on what it sees as the key financial advice issues.

“We are pleased you both recognise that your previous government had treated our industry poorly and despite most of our team being former Liberals supporters, we had no choice but to defend ourselves against your legislative brutality and determination to unfairly reduce adviser numbers,” Mr Johnston wrote.

“We were highly supportive of Mathias Cormann and his team leading into the 2013 election with fund raising and technical assistance. We will support any government that acts in the best interests of our members and their clients, conversely, we will defend our members and their clients where necessary.

“Our objective over the next 12 months is to get a bipartisan outcome with three critical issues leading into the next election. We have also given these views to the minister’s team and believe whoever comes out publicly first will get the immediate support of our industry.”

Returning the structure of risk insurance to pre-Life Insurance Framework (LIF) conditions was the first issue on the AIOFP’s agenda, with Mr Johnston arguing that there simply wasn’t a need for the wholesale restructure of the risk insurance framework that came from LIF.

“Back in 2014 the institutional lobby had decided they wanted to go directly to consumers via digital/robo/direct sales and wanted advisers out of the consumer relationship,” he said.

“A ‘justification’ story was concocted around lowering the cost of insurance premiums for consumers by reducing commission from 120 per cent to 60 per cent and eliminating ‘churners’ (advisers who regularly move clients from one company to another).

“This 50 per cent reduction in commission was then met with additional unnecessary compliance requirements rendering risk advice uneconomic. We believe there are only around 200 pure risk advisers left in the market.”

The end result, Mr Johnston argued, is that there is a lack of fresh capital being injected into insurance pools, which has led to premiums “doubling for existing policyholders, policies getting cancelled and our national underinsurance problems worsening and thought to be well over $2 trillion”.

“It is an unmitigated disaster that needs urgent attention,” he said.

“The risk industry structure was ‘NOT BROKEN’ pre 2014 but arguably needed some minor adjustments. We think the market has accepted that risk commission is here to stay but that is not enough, it’s on its knees under the current structure. Keep the cap to mitigate conflict but it must go back [or close] to pre-LIF conditions.”

Pointing to the UK and New Zealand markets, which he argued had also attempted to eliminate risk commission over the past 10 years only to see commissions back to 240 per cent and 180 per cent, respectively, to “revive the market”, Mr Johnston said clients should be given choice.

“We suggest advisers should be compelled to give consumers two risk remuneration proposals, a fee for service and a commission option, let the consumer decide – not bureaucrats in Canberra!”