Insurers still hopeful of expanded advice role post-QAR

The Council of Australian Life Insurers says the door has not yet been closed on an expanded role for insurers in providing advice to consumers as part of the government’s response to the Quality of Advice Review.

Minister for Financial Services Stephen Jones has repeatedly made clear the government will prioritise streamlining and removing some red tape for professional planners (stream one) and allowing registered superannuation funds to provide more advice to their members (stream two), arguing that retirement is a “burning deck” issue for millions of Australian households.

Jones has been less committal about the QAR’s proposal to allow other so-called non-relevant providers (insurers, banks and non-super fund managers) to provide advice without being subject to the best interests duty or professional standards regime.

But in an interview published by The Australian this week, Jones seemed to indicate he was open to proposals from the insurance industry to have a broader range of conversations with their clients “in the same way as super funds want to be able to provide more intra-fund advice to members”.

CALI chief executive Christine Cupitt says the comments indicate that “stream three has not been pushed aside” and that the government may still implement more of the QAR’s recommendations than the 14 it has accepted in part or in full.

“CALI and [its members] are focused on continuing to build trust with customers,” Cupitt tells Professional Planner. “And it’s very difficult to build that trust if we can’t meaningfully interact with them.

“We absolutely agree that retirement is a priority, and life insurers themselves want to participate in developing better retirement income offerings, together with super funds. But we also recognise that with life insurance, there are 13 and a half million working-age Australians and there are between 600 and 1100 financial advisers who regularly provide advice on life insurance. So, there’s a yawning gap between the capacity in the market to provide this advice and what Australians need.”

Cupitt says there are hundreds of thousands of insurance policyholders who are no longer advised as the industry has moved to service higher net worth individuals, leading to what has become known as the “orphan” client phenomenon.

While there are unmet consumer needs, Cupitt acknowledges the “guardrails” around the advice that insurers should be allowed to provide must be clear. She says CALI is spending a lot of time thinking about what those restrictions may look like in its engagement with government.

She says CALI is also actively lobbying in favour of streams one and two, eager to see a thriving financial advice profession and a more flexible system for super funds to advise their members, describing advice reform broadly as among CALI’s top policy priorities.

The comments come as responsibility for the Life Insurance Code of Conduct is set to be transitioned from the Financial Services Council to CALI on Friday.

The current iteration of the code came into effect at the start of the new financial year, which expands on the original version launched by the FSC in 2017.

Cupitt says the transfer of responsibility for the code is a “milestone” for CALI, whose members she says were instrumental in its creation when they were previously members of the FSC before CALI’s establishment this year.

“There was a critical role played by the industry association [FSC], but equally, the members were really embedded in the process,” she says. “And it was very important to them, that the code comes across to their new representative body.”

Cupitt, a former policy officer at the Australian Banking Association, says the code should help restore trust with the general public. But she says there may also be benefits for practising advisers, who can direct clients to the code and help ensure providers are living up to its standards, which include clear timeframes for claims handling and underwriting.

“Financial advisers can hold the industry to account in that way, and they have clarity about what their clients can expect from insurance,” Cupitt says.

“Whether it’s the financial advice professionals or super fund trustees [or] the insurers themselves through the direct channel, there’s a complete alignment of interests in making sure that consumers have trust and confidence in life insurance.”

Asked whether CALI would seek ASIC’s endorsement for the code, or a potential enforcement role for the corporate regulator as proposed by some consumer advocates and others, Cupitt says that in the first instance AFCA has been chosen as the administrator of the code’s industry-funded compliance committee and external dispute resolution provider.

“AFCA… has set a pretty high bar for us in terms of what they expect to see as part of the monitoring process,” she says.  “There are already very strong monitoring and enforcement arrangements for the code.

“This is a new code. We are really focused on making sure that it’s bedded down the industry and consumers can observe how it operates. And then we will consider what other arrangements we need to make an even more robust, deliverable confidence.”