Media reports about life insurance (LIF) ‘reforms’ usually include comments like ‘an attempt to mend the scandal-ridden sector’ or ‘enormous’ or ‘lucrative’ upfront commissions – presented as a truism without any mitigating exploration of context or truth.
Members of the Life Insurance Customer Group (LICG) argue that – if there is crisis of confidence in the insurance sector it is because of the Financial Services Council (FSC), Minister Kelly O’Dwyer, and journalists constant hyping of ‘churning’, and ‘scandalous’ upfront commissions.
It is these allegations, unproven and unjustified, that are scandalous.
The FSC and Minister O’Dwyer consistently state that LIF reforms will improve consumer confidence and produce ‘significant consumer benefits’. No one has articulated one single benefit and members of the LICG have looked at what is causing the lack of confidence and ask: Please explain.
Blaming the wrong party (advisers) for the ‘crime’, means the real perpetrators (insurers and the FSC) get away with profiteering. The consumer loses and poor outcomes continue unchecked. The economic and social wellbeing of all Australians remains compromised because our massive under-insurance problem is ignored.
LICG members have checked the facts.
As pointed out to the FSC and the Minister in our recent ‘Open Letter to the FSC’ (copy on LICG website), every negative report relates to financial service providers or insurers. Not a single headline was about independent insurance advisers.
Every institution responsible for a failing was a member of the FSC.
Did the FSC castigate members as required in their ‘Code of Conduct’? Has the FSC attempted to tell consumers who was responsible for each ‘scandal’? No wonder consumers are lacking in confidence.
Then there were the horrors exposed by Adele Ferguson in 4 Corners exposés.
In the program, “Money for Nothing”, Mr Kessel was denied the full value of his insurance contract because of outdated policy definitions.
Mr Kessel’s contract was 20 years old. With the benefit of an experienced, competent adviser Mr Kessel would have known of the deficiencies in his contract definitions and an attempt made to upgrade.
The Catch 22 in this is that by upgrading the adviser would have been accused of ‘churn’. As the FSC has not defined ‘churn’ we don’t know whether insurers would consider this a good enough reason to replace the policy.
However the intent in the program was not to show the value advisers bring to their clients, it was to display lack of credibility of an insurer with allegations of impropriety and claim “avoidance”.
The other consumers in this story were disadvantaged by insurers AND trustees of the superannuation or employer funds. Those responsible for these scandals were FSC members not advisers.
No advisers and no commissions were involved. However, without context or relevance, Ms Ferguson felt compelled to add: “life insurance is a highly troubled industry, dominated by commission payments of up to 130%”, then said ASIC research found a ”massive 37% of product advice was in breach of the law”, implying advisers caused all the ‘troubles’.
Her story was almost exclusively about ‘group’ insurance, insurance inside super funds or other group plans. The ASIC research covered ‘retail’ advice and was not related to her story.
The earlier 4 Corners program, ‘Banking Bad’, was an exposé of a client denied a claim due to non-disclosure. As Ms Ferguson rightly pointed out, the client had an existing policy which would have almost automatically paid a critical illness claim.
Unfortunately, this unsuspecting customer was identified via data-mining. He became a target for his transactional bank to convince him to change insurance. A bank-aligned ‘adviser’, with only one bank-owned product to sell, convinced the customer to change to his bank’s offer. This adviser did not adequately explain a client’s ‘Duty of Disclosure’, or warn of losing the ‘safety’ of the 3 years plus existing policy.
It wouldn’t have mattered how the bank-aligned adviser was paid. The problem was not commission but a consequence of the “share of wallet” and “sales” culture that ASIC has identified in vertically aligned and other institutional businesses. These bank ‘advisers’ are not independent advisers that can look across all insurance distribution channels. All aligned advisers are linked to FSC members.
Most life insurance complaints accepted by the Financial Ombudsman Service (FOS) are about insurers (870 of 873 in FOS 2014-2015). Insurers are FSC members. Many insurers are owned by other FSC members. Who is looking at insurer behaviours???
The ASIC research for Report 413 was directed by a Phase1 exercise of working with insurers to explore what would influence the ‘quality of retail advice’. Examples of failures to meet the law provided in the ASIC Report 413 could be easily explained by a lack of competence and lack of Licensee supervision, but (at insurer direction?) ASIC only looked for a very specific targeted sample and only a commission correlation. Insurers are members of the FSC, therefore the ASIC research was directed by FSC members. No advisers were invited to participate, so there were no ‘checks and balances’ in the research methodology.
So where are the scandals with commissions? There is no real evidence for them. The ‘scandals’ about commission are the flimsy ‘evidence’ provided in a fundamentally flawed ASIC report and negative ideologies peddled by the FSC. The adviser remuneration elements of the LIF Bill are not about addressing any of the real scandals. They are to do with the FSC further reducing scrutiny of their behaviours by threatening the viability of adviser businesses.
The true scandal in this – our Government allowing the FSC, with scandal-perpetrating members who don’t have to answer to anyone, to control a process for ‘industry reform’. This is not good leadership or good policy. Please explain.