ASIC released its much-anticipated Review of retail life insurance advice report yesterday.
The report was particularly damning when it came to existing incentives offered by life insurers to encourage financial planners to write new business – or rewrite existing business.
The latter practice, often referred to as 'churning', is contributing to "policies lapsing at high rates", said the report.
Speaking at a press conference yesterday, ASIC deputy chairman Peter Kell said life insurers need to ensure that remuneration and incentive structures “do not undermine good quality [and] compliant advice”.
“The message we’re sending to the industry is that they need to [better] manage the problems that can arise with current remuneration and incentive structures,” Mr Kell said.
“It is the life insurance and the planning industry [that] are on notice. We will be very unhappy if we end up in a situation where life insurers point their fingers at financial planning firms or advisers point their fingers at life insurers,” he said.
“There are a range of options as to how this is best dealt with. So the ball is in the industry’s court,” Mr Kell said.
In response to ASIC’s report, The Financial Services Council (FSC) and the Association of Financial Advisers (AFA) have joined forces to “specifically address” retail life insurance product structures and distribution practices.
“It is critical that remuneration models in the life insurance industry are sustainable and practical for consumers and the industry,” FSC chief executive John Brogden said.
"The ASIC report requires a serious response from the industry, [and] we have formed a working group to achieve this.
“The financial advice and life insurance sectors will work together to carefully examine the findings and recommendations in the ASIC report and to assess all options to improve market practices and sustainability,” he said.
