It may seem like a strange thing to do, however reviewing submissions to government and parliamentary inquiries can reveal a lot about the motives, politics and positions of key stakeholders. Submissions are inevitably influenced by self-interest; however, it is interesting to see how positions change over time and the differences of opinion behind joint positions. A recent classic case is the Senate economics legislation committee (SEC) review of the Life Insurance Framework (LIF) legislation.
The inquiry received 265 submissions, which is quite remarkable. This was substantially more than the Trowbridge Inquiry that received 137 submissions. It also shows the passion that remains in this debate. It is clear from the report and a review of the submissions that the vast bulk of them were from financial advice businesses that remain strongly opposed to the LIF reforms.
It was most interesting to note that only two life insurers (Zurich and Clearview) made submissions and none of the institutionally owned licensees made a submission. The Zurich and Clearview submissions make very interesting reading, highlighting the ongoing diversity of views on an issue that has seemingly charged in one direction.
Strangely, in paragraph 2.19 the SEC chose to comment on allegations made against the Financial Services Council (FSC) and reported statements by the FSC that they have 115 members and that “FSC members include a diverse range of members, including Financial Advisory Network members which include both institutional and non-institutional licensee members”.
The representation of non-aligned licensees might be expected to generate some debate.
Support for advisers
It is interesting to reflect on the two submissions from FSC member life insurers. I have no doubt that the adviser community will be pleased to read the Zurich submission, which makes a number of points that question the consumer outcome and demonstrate support for advisers. In particular:
- Zurich would welcome a shift from the almost singular focus on remuneration levels (they don’t expect the LIF to improve customer outcomes), to a focus on improved customer outcomes.
- They reference research that shows consumers are highly resistant to paying fees for life insurance advice and appear happy to have their adviser receive commissions.
- Zurich expressed concerns for the industry with respect to upfront commissions of less than 80% and state strong opposition to any move to mandate level commissions.
- They highlight that their retention rates prove that “churn” can be satisfactorily self-managed by insurers.
- Zurich expressed concern about the nature and timing of the 2018 ASIC Review.
Interestingly, although Zurich have expressed support for the LIF outcome they also made the following statement: “For the sake of clarity, this support does not automatically extend to the ad hoc commentary that the members of the FSC management team occasionally provide on this topic”.
Opposing views within FSC
Such a statement seems to suggest that there continues to be opposing views inside the FSC. In the context of Zurich’s views, as stated above, it might also be commentary with respect to the FSC media release of 6 November 2015, where the FSC made comments revealing a broader agenda on the LIF reform process, including:
- The LIF is a “positive first step in lifting industry practices to improve consumer outcomes”.
- “As the financial advice profession matures, we expect all financial advisers to move to a fee-for-service model.”
- “Many financial advisers have already moved to this model. These reforms must be implemented in a way which encourages the transition.”
Concern about FSC submission
Zurich’s statement may also reflect concern about the FSC submission to the SEC repeating the threat from the government that if significant improvement is not achieved by 2018 then they will mandate level commissions. It is interesting to note the movement in the FSC position on the issue of a review. In their February 5, 2015 submission to the Trowbridge Inquiry, the FSC recommended a 2020 review.
The ASIC review is now two years sooner, despite the process being delayed by 12 months. Advisers are rightly concerned that the 2018 review is too soon and that they are simply being set up for further change as a result. Given what has been said, they are right to be very concerned. Both Zurich and Clearview think 2018 is too soon. The question must be asked, who drove this 2018 timing and how could they think this was reasonable in the context of the reforms only coming into full effect in July 2018?
One interesting point of difference between the June 25, 2015 LIF announcement by Josh Frydenberg and the November 6, 2015 LIF ‘”Version 2” announcement by Kelly O’Dwyer, is the change from government consideration of measures to widen approved product lists (APLs) by July 1, 2016 to an industry standard as a joint industry effort led by the FSC with no due date. Interestingly, however, the FSC sought immediately to take full control of this by referring to it as an FSC standard in their November 6, 2015 media release.
It was very interesting to read the Clearview commentary in their SEC submission on this APL standard and the code of conduct. Clearview stated: “The approach taken by the FSC in developing the Life Code and APL Standard has been completely reckless and indifferent as to whether either framework better protects consumers or brings about the meaningful cultural change that the life insurance industry so desperately needs”.
This is a very direct statement, which leaves no doubt about the level of concern. According to the Clearview submission, the FSC has drafted a standard that would require a minimum of only two products on an APL. This is substantially short of the Trowbridge recommendation of at least 50 per cent of the market.
Clearview also commented on the FSC claim that it represents dealer groups, suggesting that their members include only 20 of 1300 dealer groups and over half of these are part of vertically integrated groups. Clearview has indicated that they are considering leaving the FSC on the basis of the FSC handling of the life code and APL standard process. If the APL standard is a joint industry initiative, then who else is involved and how can a more consumer-focused outcome be achieved?
The government might like to reconsider handing this requirement over to industry, particularly when the FSC had already made their view on APLs clear in their February 5, 2015 submission to the Trowbridge Inquiry. It might also be a good outcome for consumers to extend this review to platform APLs.
Reading the Zurich and Clearview submissions is certainly not wasted time. They provide interesting insight into the way key reforms are developed within groups that reflect very different stakeholders.
One interesting footnote on the SEC LIF report is the listing of the ALP committee members on page iii, which incorrectly states that Senator Dastyari is from Queensland and Senator Ketter is from NSW. The report was no doubt prepared in a particular hurry; however, surely interstate rivalry does not disappear in the robust debate on Senate committees.