It is widely accepted that the life insurance industry is in need of transformational change to achieve improved alignment of the interests of insurers, advisers and consumers. There is a clear need, highlighted by ASIC’s Review in October last year, for the removal of misaligned remuneration incentives, improved quality of advice and greater productivity in the life insurance and advice sectors.
The announcement made today by the Assistant Treasurer, the Hon Josh Frydenberg, represents a set of reforms that will initiate such a transformation. The catalyst for the reforms was the ASIC Review and the subsequent independent recommendations set out in my report released on 26 March this year*.
I am pleased to see that the essence of these recommendations during an initial three year transition period is to be adopted. The reform process is to be closely monitored and a review is to be undertaken in 2018. This review should examine how effective the transformation is at that stage and consider the balance of my recommendations, in order to identify the further reforms needed to overcome remaining misaligned incentives and better support the interests of consumers.
The announced reforms include not only maximum commissions payable to advisers by life insurers but also the development of a code of practice for insurers, a more effective advice process for consumers and a wider product selection, all aimed at enhancing the ability of advisers to act in the best interests of their clients.
It is important that these reforms are introduced quickly and constructively by the industry to initiate the cultural changes needed. The challenge is to strengthen the quality of advice, reduce conflicts of interest, offer improved value and services to consumers and extend the coverage of worthwhile life insurance protection across the Australian community.
I will be a keen observer over the next three years of the industry’s implementation of the reforms announced today by the Assistant Treasurer. The proposed review in 2018 will enable residual remuneration conflicts, quality of advice questions and industry effectiveness to be reassessed at that time and further reforms to be undertaken.
*This report was sponsored by the FSC on behalf of the life insurance industry and the AFA representing a major segment of the advice community but it was necessarily independent. Its primary goal was to develop a set of reform recommendations that would align the interests, across the life insurance value chain, of insurers, licensees, advisers and consumers.
Source: John Trowbridge
