The Association of Financial Advisers (AFA) is working to improve specific areas of the Life Insurance Framework (LIF), as implementation is considered by life insurers and government.
In commenting on the framework, AFA CEO Brad Fox said it is clear that advisers share the AFA’s concern over the detail, particularly around the three-year responsibility period for new business. Mr Fox acknowledged that three-year clawback is a blunt instrument but said it has strong government support as a measure to deal with inappropriate product replacement.
“Three-year clawback for life insurance business which the adviser replaces themselves appears to be acceptable to most advisers, but shifting the burden of responsibility to the adviser where policies lapse outside of their control is unfair,” he said. “Over the coming weeks we will continue to apply pressure for clawback to apply only with replacement product advice and not situations that sit outside the advisers’ control, like a client-directed lapse because of unaffordability.”
The AFA is also seeking confirmation from insurers that they won’t apply clawback where the policy lapses due to a successful claim, for example on life, TPD or trauma policies.
“We are concerned that the three-year clawback not be used to shift an unreasonable burden from the institutions onto small business financial advisers that do the right thing,” Mr Fox said.
The Life Insurance Framework was released on 25 June and all parties are now working on fleshing out the detail that sits behind the 14 points listed in the Assistant Treasurer’s release.
“It was on the public record that the government applied a tight deadline for the industry to reach a compromise on an agreed framework,” Mr Fox said.
“The consequence is that the initial framework lacked detail and that is what we are seeking to influence now. Advisers, especially business owners, deserve clarity and reasonable lead times to adjust to a change in the rules, especially of this magnitude. The pressure is very much on the insurers to consult early and thoroughly with the advice associations. We certainly want to see fairness in the detail.”
Another area of concern to the AFA is the ability for new advisers to start up in business. “Ten years ago we began the GenXt initiative to encourage new advisers. This has been an important industry-leading initiative, which we will continue to invest in. This Life Insurance Framework will make it harder for a new adviser to start from scratch, particularly in their own business, if they focus on risk insurance only. That’s a poor outcome at a time when the demand for advice is increasing. We’re not happy with this aspect and we will have to seek support for innovative solutions to help deal with it,” he said.
Mr Fox said the AFA understands the anger, disappointment and frustration around the reform proposal. “As we did in our webinar on 1 July, and will again at our national roadshows over the next two weeks, we will share the facts, our concerns and what the alternative outcomes were given the pressure for level commissions to be the only commissions option. We will also outline the areas that we are continuing to try and improve in the framework.”
The AFA has released a Q&A Fact Sheet to help advisers better understand the framework which is available on the AFA website at https://www.afa.asn.au/resources/life-insurance-framework-qa
Source: AFA
