LIF: The negatives outweighed the benefits

Mike Taylor

Managing Editor and Publisher

7 March 2023

Eight years after the implementation of the Life Insurance Framework (LIF) questions need to be asked about whether the outcome justified the costs inflicted on the life insurance industry and life/risk advisers, according to a new white paper.

The white paper has identified that the only benefit derived from the LIF was a reduction in policy churn but that this needs to be weighed against the deficits of a decline in life/risk sales, a 67% decline in the number of specialist life/risk advisers and an estimated 18% increase in Australia’s life insurance gap.

What is more, policy lapse data for the period leading up to and following the implementation of the LIF suggests that the level of churn was well short of 16%.

Just as importantly, the research asserts that, on the available evidence, there has been no decline in the cost of life insurance premiums which can be directly attributed to the LIF.

The white paper concludes that the LIF was founded in political decisions taken around the Australian Securities and Investments Commission’s 2014 Report 423 which identified policy churn as a problem and that with the final recommendations of the Quality of Advice Review (QAR) currently the subject of a Federal Cabinet decision its fate will also be determined by political decision-making.

The white paper, the product of a work by Financial Newswire and specialist research business, WealthData, will be launched at the Life Insurance Outlook Conference in Sydney today – an event at which the chief executive of the newly-formed Council of Australian Life Insurers (CALI), Christine Cupitt, will be delivering her first industry keynote.

The white paper has been developed at the same time as the Government considers the final recommendations of the Quality of Advice Review (QAR) and whether to accept a continuation of the LIF and its commission-based adviser remuneration formula.

With respect to the future of the LIF, QAR chair, Michelle Levy, has recommended that the LIF continue on the following basis: “The exception to the ban on conflicted remuneration for life insurance should be retained but subject to a new condition that a person who provides personal advice to a retail client about a life risk insurance product obtain the client’s informed consent before accepting a commission”.

Levy has also recommended “the current commissions and clawback rates should be retained”.

The white paper also delivers the first focused analysis of what it terms “the decline and not quite fall of life/risk advisers” with WealthData revealing that the number of financial advisers who can offer risk insurance but not investment advice has reduced by 67%.

It finds that there are now fewer than 590 people still listed on the Financial Adviser Register (FAR) who could be viewed as life/risk specialists.