The independent chair of the Life Insurance Advice Working Group’s (LIAWG) report into life insurance, John Trowbridge, has confirmed that submissions will not be made public during the review period.
Criticisms about a lack of consumer trust in the quality of life insurance advice were highlighted in the Australian Securities and Investments Commission’s review of life insurance advice, as published in October. It found a strong correlation between high upfront commissions and non-compliant advice.
In response, the Financial Services Council (FSC) and Association of Financial Advisers (AFA) formed the working group, to review the ASIC report and present solutions to the issues raised.
“We concluded that we didn’t want to hinder anybody’s freedom to express whatever they want, and therefore we thought we would automatically make them confidential…[to avoid publicising] commercial sensitivities that may otherwise discourage submissions by some industry stakeholders,” Trowbridge says,
“But at the end of the submission period, we will give some information about the number of submissions, their origin and their nature.”
The call for submissions closes on 30 January 2015, with the final report due to be handed down by the end of March.
No recommendations yet
“This is an additions and options paper, that puts many questions on the table, it doesn’t make recommendations, doesn’t make proposals, it simply airs all the issues and invites submissions,” Trowbridge added.
An unequivocal opposition to a mandatory fee-for-service remuneration model in life insurance advice and a commitment to a “robust self-regulatory solution” are among the few clear positions the report adopts. Removing high front-end loaded commissions for life insurance advice in favour of more level or hybrid models is one of the core recommendations.
“ASIC has really thrown down the gauntlet to the industry, by putting a set of recommendation out on what needs to be done, but without any real indication of how it might be done.
“That’s been left to the industry, and the industry has decided to put together this review,” Trowbridge said.
The quality of advice, remuneration and other adviser incentives, insurer practices and industry productivity are four key areas the final report will address.
Level, hybrid, modified hybrid, level plus fees and level funded models are the remuneration models identified by the report as being worthy of consideration and debate.
According to the report, “We rule out the option of continuing with the most common arrangement where initial commissions exceed 100 per cent of the first year’s premium…at the other end of the spectrum, a no commission arrangement has not been actively considered.”
“Everybody who has had anything to say on this with any serious thought has said ‘yes there should be commissions’, there have to be commissions, it won’t work otherwise. The question is, what commissions?” Trowbridge said.
He referred also to bipartisan political support for maintaining commissions in insurance, including the Ripoll Inquiry.
“Bearing in mind that fee-for-service is not a realistic option, we’ve explored that, and all experience not only in Australia but elsewhere says that if you rely on fee-for-service, you won’t get very far, except with high net worth people,” Trowbridge says.
Ruling out nil commissions
Mark Rantall, chief executive officer of the Financial Planning Assocation (FPA) questions this blanket ban approach to nil commission models in risk advice.
“Excluding any fee-for-service option for any type of client is an interesting exclusion, because that doesn’t then deal with the issue of whether insurance companies dial down 100 per cent of the commissions that are embedded into the product, so that’s probably one thing we’ll have a good look at,” Rantall says.
He believes this issue, and whether clients get the full benefit of dialed-down commissions is an important one for the industry to explore. “It was just interesting to take it off the table.”
However, Trowbridge said the FPA “was not denying the process” and both he and Brad Fox, chief executive of the AFA, said the FPA had received a copy of the report and were invited to submit a response.
“This process of industry debate and discussion is very positive, but I think all options could and should be on the table for debate,” Rantall adds.
He also queries the short timeframe the LIAWG has set for receiving submissions, with a deadline of 30 January 2015, “this seems to make it difficult,” he says.
“After an early first look, I think a greater focus on the consumer and working back from there might deliver better consumer outcomes, and I think that needs to be built into the process.
“There is also the issue of how you get the whole industry to line up behind what other recommendations might come out of it. By design, this report has more questions than answers at this stage, but we’ll take some time to go through it,” Rantall says.
