The securities regulator has started gathering data and is laying the framework for a review to measure the quality of risk insurance advice in Australia, a senior ASIC executive has outlined.
ASIC has already issued three of the four notices it intends to issue to purveyors of risk advice and services as part of the data-gathering aspect of the review, Joanna Bird, ASIC’s executive director, wealth management, has said.
Once the data gathering is complete, ASIC will then kick off a surveillance project; ASIC’s risk advice surveillance project will be based on a random but representative sample of advice currently being given by risk advisers in this country, Bird said.
Bird’s outline of ASIC’s risk advice review plan is the most current insight into the regulator’s approach to assessing the effectiveness of the Life Insurance Framework reforms to date; it was explained during a round table in Parliament House in Canberra on Wednesday, hosted by AIA Australia, facilitated by Professional Planner and attended by the current financial services minister Senator Jane Hume and shadow minister and assistant shadow minister for financial services, Hon. Stephen Jones MP and Hon. Matt Thistlethwaite MP.
ASIC’s risk advice review, which Bird described during the discussion, was mandated when the Life Insurance Framework (LIF) changes were implemented in 2018. ASIC’s review has taken on greater significance following the Hayne royal commission when it was noted in the final report’s recommendations that the cap on commissions should ultimately be reduced to zero unless the review showed clear justification for retaining those commissions.
Insurance industry leaders believe LIF changes have levelled the paying field by removing the financial incentive for advisers to recommend one product or insurer over another, whereas before the LIF changes, insurers could set their own commission payments to risk advisers which led to conflicts.
“We agreed to do the review at the time the reforms were introduced and nothing really has changed,” Bird told the table, which also included a handful of risk advisers, life insurance company CEOs and heads of the Financial Services Council, Financial Planning Association and Association of Financial Advisers. Professional Planner will report more insights from this discussion in coming weeks and months leading up the its inaugural Risk Advice Summit.
“Our aim is to do an evidence based review and that will enable government to make an informed decision about what the policy will be,” Bird said.
In preparing for the surveillance project – which will commence at the start of 2021 – ASIC is gathering data now about the risk advice industry.
ASIC’s data capture includes gathering sales data, policy outcomes, premium differentials, commissions paid, data on policies that have lapsed and been clawed back.
“That’s part one of the review,” Bird highlighted.
The second part of the review will assess the quality of risk insurance advice and outcomes using results from surveillance, she said.
“We’ve always taken the point of view you can’t really tell if life insurance advice is in the interest of clients or not, which is why we are doing this review… the reason we are starting it in 2021 is we want to see whether the reforms have made a difference,” she said.
Bird estimated that the findings probably won’t be finalised or publish until 2022 given the size of the review.