ASIC will no longer have the fate of the life insurance advice industry in its hands after the minister for financial services, superannuation and the digital economy, Jane Hume, announced the Life Insurance Framework (LIF) review will be rolled into the Quality of Advice review and handed over to Treasury.
Speaking at the Financial Services Council (FSC) Life Insurance Summit this morning, Hume said it was “silly” to have two separate reviews that could conceivably be combined into one.
“Accordingly, the government will ensure that rather than conducting two separate reviews… the Quality of Advice Review will now also consider the LIF as part of its wider mandate, removing the need for a separate LIF review,” Hume said.
In a subsequent fireside Q&A session with FSC chief executive Sally Loane, Hume said the government wanted “alignment”, rather than duplication, in its work.
The move was unexpected as ASIC is deep into its data collection activities for the LIF review. As far back as mid-2019 Joanna Bird, ASIC’s executive director of wealth management, said the regulator was gathering data and laying the framework for the review.
“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 at the time.
After gathering data on sales, policy outcomes, premium differentials, commissions paid, lapsed policies and clawbacks for two years, ASIC began surveillance work this year with the intention of having the findings published in 2022.
The regulator will now be forced to hand all of its work on the project to Treasury.
The move consolidates Treasury’s position as a leading force in advice reform. Earlier this week the government released draft legislation confirming Treasury – under the direction of the Minister – will absorb FASEA’s education and ethics responsibilities when the authority is wound up on 1 January, 2022.
While the transfer of responsibilities for the LIF review is ostensibly an efficiency play, Hume also hinted that Treasury was in a better place to assess the entire spectrum of advice than the corporate regulator.
“ASIC have already started this, they’ve done their data collection on it and they’ve done a really good job,” Hume said. “But that data will now come back to Treasury for analysis and further work, which is terrific. I think It will create a far more holistic look at the quality of advice.”
‘Vexed’ commissions issue
The core element of the LIF review – the ongoing viability of insurance advice commissions – was a key topic at the Life Insurance Summit, with both Hume and Shadow Minister for Financial Services and superannuation, Stephen Jones, reiterating their respective policy lines.
Jones, presenting the opposition’s view, called insurance commissions a “vexed issue”.
Hume took a sympathetic tone, noting the government has continued to allow commissions and FASEA has deemed them to be an acceptable form of remuneration.
“The issue with commissions is not their existence per se,” Hume said. “The issue is when they influence the advice provided.”
Jones maintained his default stance that commissions are inherently conflicted.
“In this room we all know that the royal commission set quite clearly a prima facie position on conflicted remuneration, a position that I find compelling,” he said.
“Of course, we have found some areas we have found that the prima facie position is not necessarily the most practical and best position,” Jones continued.