FAAA cites APRA consumer detriments on IDII
The financial services regulators ought to be under an obligation not to take actions which create undue risk for consumers – something exemplified by the Australian Prudential Regulation Authority’s (APRA’s) intervention in the individual disability income insurance market.
The Financial Advice Association of Australia (FAAA) has cited APRA’s IDII intervention as an example of creating increased risk of consumer detriment.
It said the consumer detriments in question included:
- The change in the definition of income at risk for clients who have variable incomes (such as farmers), resulted in some clients being unable to fully insure themselves.
- The risk of being in a product that was closed as a result of the IDII intervention, which was subject to a much great exposure to premium increases (as has occurred since the intervention), when they were unable to move to a newer product due to health issues.
- Increased difficulty in accessing life insurance advice as a result of a range of reforms impacting the merits of remaining a risk adviser (Life Insurance Framework, Professional Standards reforms and the IDII Intervention).
In a submission to the Financial Regulator Assessment Authority within Treasury, the FAAA urged that the characteristic of “fairness” should apply to all stakeholders.
“Regulators are tasked with oversight of the laws enacted by Parliament to protect consumers and the financial system. This bestows on them a responsibility to ensure actions they take do not have unintended consequences or create undue risk. The metrics framework should reflect this responsibility,” the FAAA submission said.
Elsewhere in its submission, the FAAA pointed to the need for the regulators to take account of market competitiveness with respect to life insurance, noting htat the high premium increases seen in recent years represented a sign of market failure.
The submission also pointed to measuring the broader health of the life insurance sector in terms of measuring the ratio of new life insurance business against in-force life insurance business, noting that “a fall in new business, as we have seen in recent years, largely as a result of a substantial decline in financial advisers, is a clear sign of risk”.
The damage caused by APRA to consumers is reprehensible and worthy of a Royal Commission.
Intervening without consulting with the experts at the coalface is pure arrogance and smacks of regulatory capture.
But like LIF, this is backfiring and hurting the life companies, so there are no winners. Heads need to roll
Except they did consult with AFA at the time.
And now wait for the IDII AFCA complaints to roll in, because after 2 years on claim a lot of policies change their total disability definition which will likely stop any further payments. From they eyes of the consumers, this then reduces confidence in the insurance industry as a whole, that these policies do what they are meant to do, and probably less take up of insurances and a widening insurance gap.
The government have well and truly impeded the Life insurance industry in Australia to the detriment of insured policy holders and the general public (increase in welfare payments). It’s astounding that working financial advisers were never consulted nor their concerns ever carry any weight with the government because we are the ones actually providing the advice to the people. Any adviser could have told them about the poor potential outcomes resulting from LIF and now IDII, yet we revert to bureaucrats and academics to set policy (likely with their own personal ideology in tow). More collaboration is needed. Judging from what I am hearing APRA didn’t even consult the insurers about IDII either.
Yesterday I attended the funeral of Dugald Mitchell, past president of the ALA, and one of the great behind-the-scenes workers lobbying for professionalism and recognition of the financial advice industry. and in particular, the insurance industry. One of Dugald’s key objectives over the years was to seek recognition for life insurance advisors as genuine and equal “stakeholders” when it came to dealing with government. He was striving for a situation where every time a policymaker in government, or a regulator seeking to intervene in a market, would first think to pick up the phone and speak to a representative of the most important stakeholders in the industry – the advisers who talk to clients.
You see Dugald had entered the life insurance industry at a time when the regulator was the Insurance and Superannuation Commissioner (ISC), which performed the functions currently undertaken by ASIC on insurance and Apra on prudential regulation. The Commissioners used to regularly attend adviser functions to gather intelligence on what was happening in the industry.
Sadly Dugald and I would probably agree that we never achieved that stakeholder status, and certainly nowhere near the stakeholder status of the AMA or the Pharmacy Guild. The classic case is with Apra and the intervention in 2018- 2019 into the IP market. We were not alone, Apra did not even consult most of the life offices according to the intelligence I’ve obtained by asking the right questions of the right people. Apra at that time had been taken over by some newly arrived storm troopers, who thought consultation was a waste of time, and decided to take the nuclear option.
Apra apparently, on the evidence, did not even consider the already-evident impact of LIF on NEW BUSINESS, nor the fact that many experienced advisers point-blank refused to write the post October 21 IP contracts, unless it was in the absolute best interest of their clients, preferring to service existing policies.
We advisers were never consulted by Apra in any way. The AFA and the FPA had to invite themselves to consultations post eruptus.
Apparently Apra did not know about FASEA and its stringent guidelines for providing financial advice.. Then, compounding Apra’s apparent ignorance of the fact that in 2019 there were very few advisers still in vertically integrated situations, compared to what had been the case under the old “tied agency” historical distribution arrangements, Apra hinted that insurers had a role to insist on the replacement of legacy IP products. If you read the Apra documentation attached to the October 21 announcements, it is clear Apra were of the view that insurers could STILL compel independently minded advisers to recommend the replacement of legacy contracts with the new post 21 “offer”, and bugger Standard 5
It’s now apparent that at no time did Apra think it might be wise to consult life risk advisers, equally the most important stakeholders in the argument, who actually talked about income protection to their clients, at every meeting.
And the most recent example of failing to consult stakeholders in an industry, well that’s that despicable ASIC levy
Do I think that will change? Not on your Nelly, unless our professional bodies are prepared to occasionally use artillery! Or as Theodore Roosevelt once put it, when asked about his foreign policy principles, replied “talk softly, and carry a big stick”. Right now there’s not even a twig to be seen.