Following months of negotiation, the Association of Financial Advisers (AFA) supports the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016, introduced by the Government to the Lower House today, as a core pillar of the broader Life Insurance Framework (LIF) reforms.
The AFA contributed to an agreement in principle with the Minister for Revenue and Financial Services, Kelly O’Dwyer (the Minister) on a package of life insurance reforms in November 2015, but has worked diligently since then to achieve a level playing field across all channels of the life insurance market through the detailed drafting and consultation period.
“This Bill does not give our members everything that we thought was appropriate, but there are many other stakeholders that the Government also needs to satisfy,” Mr Fox says. “On balance this Bill, as part of the package of reforms that includes the Life Insurer Code of Practice, an ASIC led Statement of Advice review project and regular reporting from insurers to ASIC on lapse rates, means that consumers can have more trust and confidence in life insurance. That is the most important outcome.”
AFA CEO Brad Fox says not having a level playing field was always a deal breaker for the association and the Minister has supported that position. “This Bill will mean that life insurance arranged through personal financial advice from a qualified financial adviser, and life insurance bought directly through the weaker general advice channels such as the internet, credit card offers and TV sales, will have the same remuneration and clawback provisions applied to them. Very importantly, we have succeeded in ensuring that business models where no advice at all is provided will also fall under the regime.”
The commencement date of 1 January 2018 is also supported by the AFA. “This commencement date means self-employed financial advisers have a little longer to prepare their business models for the significant reduction in upfront commissions. It also means insurers have time to work with advisers to create efficiencies that will reduce the costs to provide advice to clients. Importantly, we succeeded in ensuring institutionally employed financial advisers will also come under the same framework earlier than would have been the case under the previous drafting of these reforms.”
The AFA, together with the Financial Planning Association (FPA), had previously succeeded in gaining Government support for a two-year clawback period which was reduced from the three-year clawback originally proposed. “As the two leading professional bodies we successfully demonstrated to Government that our small business owner members would unfairly have too much commercial risk shifted onto them by the life insurance institutions if a three-year clawback provision was to be applied.”
The AFA is also working with insurers towards a premium freeze for clients for the duration of the clawback period to avoid circumstances where significant premium increases on the first anniversary of a policy make it compelling to consider alternative insurers for clients.
The AFA says the evidence shows that consumer outcomes from seeking financial advice to buy life insurance is far superior to outcomes through superannuation funds and direct sales channels like TV. “Life insurance through a financial adviser is almost always a better policy with more generous contract terms for the consumer, and the policies are often considerably less expensive than advertised direct insurance or insurance in a super fund. These reforms are very significant and should give Australians the confidence to call a financial adviser for their life insurance needs,” Mr Fox says.
“We are pleased that the Government has supported our calls for the future ASIC review of these substantial reforms to be conducted in 2021. We will work to ensure that this review is fair, wide ranging and representative of all life insurance advice provided to consumers and in particular captures the value that financial advisers provides, and clearly identifies the underlying reasons why policies lapse. We look forward to the FSC Life Insurance Code of Practice being further strengthened through this period. The AFA will be an active participant in those discussions.”
