FPA Life Insurance Blueprint Released
The Financial Planning Association of Australia (FPA) has today released a Life Insurance Blueprint paper and a consultation survey to its members regarding the Life Insurance sector.
“The FPA Blueprint is based on conversations with the Board and members to date, and seeks to further collaborate with members on key matters,” said Mr Mark Rantall, CEO of the FPA.
“The Government has given the industry weeks not months to sort out its reform position for the life insurance industry. Our aim is to drive a competitive, professional, and ultimately a valuable service to Australian consumers, in what is a critical service to the public.
“The FPA wants sustainable change in the life risk sector through higher professional standards and by improving the public perception of the life risk advice service offering.
“The form of regulation proposed in the FSI Final Report would only serve to benefit life insurance providers and potentially push more Australians away from life insurance coverage due to the failure of addressing the real structural issues within the industry. Premiums are increasing, products remain complex and misunderstood, and Australians are still underinsured.”
Mr Rantall said the FPA is consulting with members on a package of reforms that should provide a sustainable solution to some of the issues facing the industry.
“Remuneration for insurance work should be compensated commensurate to when the work is undertaken, in an open and transparent manner. Given that most of the work involved in putting insurance policies in place through a SOA and underwriting is in the establishment phase, this would preclude support for a flat or level commission structure. The FPA is proposing upfront payments to be capped at 4 times ongoing payments.”
Other considerations include extending the responsibility period to two years from 1 July 2015; promoting fee-for-service for insurance; banning other forms of Conflicted Remunerations; and the removal of heavily restricted approved products lists (APL), support for financial planners meeting their best interest duty and tighter regulation.
“The system should promote consumers’ best interests by allowing planners to give their clients the best advice for them, without being limited by things like APLs or conflicted payments. We also think that providing better training and guidance to planners who provide life insurance will improve the quality of advice,” Mr Rantall said.
The consultation survey will be open for a week and will form the FPA’s official response to the Government.
FPA Life Insurance Blueprint
Through consultation with the FPA Board, FPA committees and FPA members, we would like to propose the following reform package:
- There is a need for commissions to remain. It enables those Australians who are least able to afford fees and need insurance protection the most, to obtain quality advice and appropriate cover.
- Commissions need to be higher initially, which reflects the costs of providing initial advice and implementing cover. A lower ongoing commission allows consumers to access review advice and encourages retention of policies – it is our view that the upfront work is often 4 times more than annual reviews. Therefore an upfront payment capped at 4 times the ongoing commission payment would be appropriate.
- As part of an effective commission model advisers should be partly responsible for the ongoing retention of the policy. We propose that commissions be able to be reversed for up to the first two years of a new policy.
- A transition period of no more than three years to the new commission model.
- To promote fee-for-service for insurance, life insurance companies should be required to develop and implement options for financial planners to dial down commission from the product, and dial in a separately identified adviser fee.
- Ban other forms of Conflicted Remuneration. This includes banning volume-based payments, rebates, profit sharing and shelf space fees.
- Remove heavily restricted approved products list (APL). Life risk products should be competitive on the basis of their suitability to the client, and financial planners should be supported in meeting their best interest duty.
- Life insurance companies should be required to pass on savings in the form of premium reductions and sustainable premium pricing structures across all channels including retail, group and direct.
- There needs to be stronger enforcement. The industry needs to work better with the regulator to monitor and enforce poor life insurance advice practices that do not meet the best interest duty. A system should be established where life insurance companies are required to report financial advisers that are churning insurance policies to the regulator for review. This should be incorporated in a life insurance code.
- We are to provide better training and guidance support for financial planners who provide life risk advice. They should be required to complete life risk training such as the Life Risk Specialist accreditation and should be provided with guidance on best practice, when providing advice on life insurance.