Why a healthy advice sector will drive a healthy life sector

The future of the Australian life insurance industry depends on a thriving advice profession, but the regulatory burden being imposed on advisers is acting as a significant impediment, a key Parliamentary Committee has been told.

The managing director of major life insurer ClearView, Simon Swanson has told the House of Representatives Standing Committee on Economics advice affordability is deteriorating at a time when awareness of the need for life insurance had never been greater.

“We believe that the future of the life insurance industry depends on a thriving advice profession,” he said.

Swanson also signalled that the Government should move to avoid getting bogged down on the Life Insurance Framework (LIF) congratulating the Treasurer, Josh Frydenberg, for combining the LIF review with the quality of advice review and predicting that the outcome should be positive in circumstances where advisers have never been more educated than they are today.

“In our view, the complexity of life insurance and income protection means that personal advice is fundamental to ensuring that customers have appropriate cover,” he said but noted that Australia’s life insurance sector “is dominated by a handful of large, foreign players. We have our own big four. Together they represent 75% of retail in-force premiums”.

“I also make the point that Australia is one of the few countries in the Asia/Pacific that doesn’t allow life insurance companies to also offer health insurance. In a few short decades Australia’s life insurance industry has unfortunately gone from a pillar of society to a small blip in financial services despite offering products that are highly relevant to society.”

“Australia’s under-insurance gap has widened over recent decades particularly among certain groups in society such as those aged between 25 and 44, furthermore one in four Australians don’t have any income protection insurance and levels of life insurance continues to fall in relation to the high levels of household debt in Australia.”

Swanson said that while the industry had to accept some responsibility for its part in exacerbating the under-insurance problem, in recent times over-regulation had also played a role.

“Currently the regulatory burden on advice businesses and major changes to adviser remuneration under the Life Insurance Framework is driving up the cost to serve and in turn the price of advice. This has created serious unintended consequences for families, society and the government,” he said.

“Advice affordability is deteriorating at a time when awareness of the need for life insurance has never been greater due to COVID-19 and record-high levels of household debt. We believe that the future of the life insurance industry depends on a thriving advice profession.”

“When advisers do well and the advice industry is strong customers have improved access to quality advice and society benefits. Reducing the compliance burden will go some way to improving the situation.”