Will life insurers’ new voice have time to resonate in Canberra?

ANALYSIS

The yet to be fully formed Council of Australia Life Insurers (CALI) will have to hit the ground running if it is to have its voice heard with respect to the Quality of Advice Review (QAR) and the future of the life insurance framework (LIF).

While the CALI has the crucial backing of Australia’s largest life insurers in the form of AIA Australia, TAL, MLC Life and Metlife, it has yet to appoint a chief executive or the executive staff and officers necessary to deliver its voice to the QAR and, more importantly, to Government policy-makers in Canberra.

This is important because submissions to the QAR have already closed and while TAL, AIA Australia, MetLife and a number of other insurers have made individual submissions to the review, the industry’s over-arching position has mostly been reflected in the submission filed by the Financial Services Council (FSC).

Hardly surprisingly, both AIA Australia and TAL’s submissions have strongly backed the retention of the LIF, with AIA arguing that it has removed misaligned incentives in distribution channels that had previously contributed to poor advice and recommendations.

“We believe that LIF provides the right balance. It has clearly changed adviser behaviour, reduced conflicts of interest and led to better consumer outcomes,” the AIA submission said. “However, LIF together with the continued increase in the cost of providing advice (which is impacted by current regulatory settings) has made the delivery of life risk advice unprofitable for some advisers. Removal of the exemption (for life risk products) to the ban on conflicted remuneration or a reduction in the LIF commission caps would further increase the cost of advice as this would directly translate to payment for life risk product advice under a fee for service model.”

“LIF has also contributed to changes in the structure of advice firms, with many advisers departing the market, with those remaining tending to focus on fewer, high-net-worth clients,” the AIA submission said.

Fort its part, TAL said that it “s strongly believes consumers should have a choice in whether they pay an upfront fee for life insurance advice, or whether the fee is paid by the product issuer in the form of a commission”.

“Because an upfront fee deters many people from seeking life insurance advice, our conclusion is commissions facilitate access to the benefits of life insurance advice, while the LIF instrument acts to better align the interests of customers, advisers and life insurers.”

“With customer access to life insurance advice already under pressure, any reductions in LIF commission rates will inevitably result in further material decreases to the accessibility of life insurance advice provided by financial advisers. This would have damaging consequences, undermining outcomes for individuals while exacerbating Australia’s underinsurance challenge.”

While the CALI is yet to get up and running to prosecute the arguments of the major life insurers, they will remain reliant on their continuing relationships with the FSC.

However, a number of the life companies and reinsurers who have signaled their support for the establishment of the CALI are also members of the Insurance Council of Australia (ICA) because of their general insurance offerings and can be expected to seek some assistance from that quarter.

While the FSC has always maintained a strong lobbying presence in Canberra, the ICA has been regarded as equally strong in promoting the general insurance industry’s voice in Canberra and along lines that are often more closely aligned with that of the life insurers.