CALI calls for insurer lead generation carve-out

The Council of Australian Life Insurers has called for a carve-out from any regulatory restrictions on lead generation, arguing the potential for damage isn’t as significant as in investment advice.

In a submission to Treasury’s consultation on curbing lead generators, launched in response to regulatory gaps in the aftermath of the $1 billion Shield and First Guardian collapse, CALI said a blanket ban could harm consumer choice.

“CALI does not support a broad ban on lead generation, as this would risk limiting access to life insurance and advice without appropriately targeting the policy concerns identified,” the CALI submission said.

“However, if such an approach is pursued, a carve-out for life insurance is essential given its distinct low risk profile and reliance on customer-initiated pathways to access the critical life insurance protections Australians rely on.”

CALI chief executive Christine Cupitt said a blanket ban would prevent life insurers from receiving customer enquiries from comparison websites.

“One in two Australians want personalised advice about life insurance and more people are turning to online tools, including market comparison sites, to learn about life insurance,” Cupitt said in a media release.

Furthermore, it did not support an extension of the anti-hawking regime beyond financial products – campaigned for by the Super Members Council and Super Consumers Australia – which would eliminate a loophole in the law which exempted financial services like advice.

The SMC had also called for a ban on lead generators, with a carve-out for “safe, legitimate education and communication activities” to protect legitimate member communication.

CALI supported a proposal to extend Design and Distribution Obligations to lead generation activities to improve oversight and accountability across distribution channels, as well as more intervention powers by the regulator to intervene on superannuation advertising.

The association also said that any lead generation reforms must operate consistently with the Delivering Better Financial Outcomes advice reforms.

“DBFO is a critical initiative to improve access to safe, affordable, scalable advice,” the submission said.

“Reforms that inadvertently disrupt remuneration structures or restrict appropriate customer engagement are likely to increase the nation’s risk protection gap.”

The lead generator consultation was one of three simultaneously run by Treasury and part of a broader suite of consultations launched in the aftermath of the Shield and First Guardian collapse.

ASIC acted against the Shield and First Guardian funds over concerns that investor money was being misused on high-risk investments, pet projects of directors and personal expenses. Court proceedings against both funds are ongoing.

The investments in the funds grew due to a sophisticated network of lead generators that contacted people who used online “superannuation health check” advertisements and applied high-pressure sales tactics to refer them to financial advisers.

The regulator has commenced action against advisers, licensees, trustees and SQM Research for their alleged involvement in the distribution of the funds.

ASIC has already published a list of known lead generators and licensees that have used them, although inclusion on the list isn’t an accusation of wrongdoing, but only to warn consumers.

The proposed reforms in the other consultations included new platform-specific restrictions, banning advice fee deductions from super balances when switching funds and waiting period for inter-fund switches.

Industry associations have called for the addition of MISs into the CSLR, knocked back calls to ban advice fee deductions and supported more regulatory oversight of lead generators.

The Advisers Association, which also released their submissions to the consultations this week, said a combination of improving consumer financial literacy, the early identification of poor behaviours, swift action by regulators and the effective enforcement of existing regulations, and increased personal accountability for those stakeholders failing to meet regulatory obligations is needed rather than new regulations.

“None of these in isolation will achieve the desired results of improved consumer protection,” the TAA said in a media statement.

The TAA said adding more prescriptive regulations will result in significant compliance and administrative costs for the entire sector, with minimal impact on consumer protection outcomes.

Instead, the association called for tougher penalties for those breaking the law.

“Crucially, bad actors remain unaffected, as they are willing to ignore rules or find gaps in them to gain an unfair advantage,” the association said.

“TAA believes these actors will persist unless penalties for breaching the law are made personal and significant.”