The Financial Planning Association of Australia The Financial Planning Association of Australia

FPA statement on Life Insurance Framework consultation process

The Financial Planning Association of Australia (FPA) has long advocated sustainable change in the life risk sector through education, higher standards and improving the public perception of the life risk offering.

In response to the ASIC report into life insurance advice, the FPA was asked to work with industry leaders and government to develop a solution to address the issues raised in the report.

As part of this process, the FPA sought feedback from its 11,000 members (who comprise both independent and institutionally aligned planners), before releasing the FPA Life Insurance Blueprint in May this year. Over 1,000 members took part in this consultation process, and over 70% supported the recommendations in the blueprint.

At the request of government, a joint solution was negotiated and announced by the FPA, Financial Services Council (FSC) and the Association of Financial Advisers (AFA) on 25 June 2015. The alternative was to have a Government response to the FSI Inquiry recommendation of level commissions only.

The following outlines the milestones that led up to the 25 June announcement:

Life Insurance Framework: FPA response

  • October 2014: ASIC’s report into life insurance advice, along with the Financial System Inquiry (FSI) and the March 2015 Trowbridge report suggested significant amendments to the life insurance industry.
  • 7 December 2014: The FSI final report was released, recommending that government legislate against upfront commissions being greater than ongoing commissions – i.e. a level commission model
  • 31 March 2015: The FPA submission to government recommended that the government not support the FSI recommendation on commissions
  • April 2015: The government called for a swift, united industry response
  • May 2015: Following the response to FSI, the FPA sought input from its members into the FPA Life Insurance Blueprint via a consultation survey. The Blueprint outlined a competitive and sustainable solution for the industry and over 1,000 members responded.
  • Specifically, the FPA consulted with members on a hybrid system that would allow commissions, with an upfront payment capped at four times the ongoing commission payment. This served to protect consumers from paying high fees by addressing remuneration.
  • Other key points from the FPA Life Insurance Blueprint included:
    • A two-year responsibility period only (Claw Back)
    • Banning other forms of Conflicted Remuneration. This includes banning volume-based payments, rebates, profit sharing and shelf space fees
    • Removing 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
    • A requirement for life insurance companies to pass on savings
    • Stronger enforcement of life insurance advice practices to report financial advisers that are churning insurance policies to the regulator for review (life insurance code)
    • Better training and guidance support for financial planners who provide life risk advice.
  • 71% of FPA members supported the Life Insurance Blueprint; 67% believed the proposed remuneration model enabled them to continue providing insurance advice and services; 55% supported an upfront payment capped at four times the ongoing payment.
  • The industry consultation process the government had called for was challenging, and caused much debate and discussion. The FPA took on board the feedback gained from members on the Life Insurance Blueprint and fought hard for an appropriate outcome for both financial planners and consumers.
  • 25 June 2015 – to date: While the FPA was unable to secure every recommendation put forward in the Blueprint, we continue to fight for sensible interpretation of the outlined policy announced on the 25 June 2015, particularly the interpretation of what consists a lapsed policy for the purpose of the claw back provisions.