Yesterday independent LIAWG chair and former APRA official John Trowbridge handed down his report in response to ASIC’s scathing 2014 review of the life insurance advice sector.
In an accompanying statement, Mr Trowbridge said his intention was to change the focus of insurer distribution strategy.
“These changes are transformative as they are designed to stimulate insurers to compete for customers instead of for licensees and advisers,” Mr Trowbridge said in a statement. “They will remove misaligned incentives for new and replacement policies and align the interests of insurers, licensees and advisers.”
Among a number of recommendations, Mr Trowbridge urged a flat commission not exceeding 20 per cent for financial advisers – with the option of an ‘initial advice payment’ in some circumstances – as well as a requirement for licensees to review their internal cultures and become prohibited from accepting any benefits from product manufacturers that may influence product choice or advice provision of practitioners under their control.
Licensees that currently operate restrictive APLs would be required to introduce open architecture providing financial advisers access to a panel of at least six insurers, in an effort to “ensure competitive access and choice for all advisers”.
In addition, Mr Trowbridge floated the notion of a self-regulatory conduct framework for life insurance manufacturers, akin to the existing General Insurance Code of Practice.
While the FSC welcomed the report which chief executive Sally Loane described as “comprehensive”, its partner in establishing the LIAWG, the AFA, issued a statement reflecting thinly-veiled disappointment at Mr Trowbridge’s ultimate conclusions.
“Ideally this final report would have our complete support but unfortunately, in its current form, it does not,” said AFA chief executive Brad Fox.
“We are concerned that the Trowbridge Report recommendations, if adopted, are likely to increase the cost of life insurance advice to Australians.
“Unless it becomes less expensive for the adviser to provide the advice, or insurance premiums reduce substantially as a result of these recommendations, then fewer Australians will be able to afford life insurance advice.”
In analysis penned for InvestorDaily sister title Risk Adviser, former AFA president Michael Nowak and Perera Crowther Financial Services head of insurance Sam Perera also questioned whether the introduction of flat commissions might impact the independently-owned financial planning sector more heavily, thereby further reducing competition in the already consolidated advice market.
However, while risk advice practitioners and its lobby group, the AFA, are arguing advice and life insurance will be made more accessible, Industry Super Australia has argued the Trowbridge Report did not go far enough.
“While the report’s proposals may deal with the most egregious situations of churn, it fails to tackle the fundamental conflict caused by the existence of commissions, even if capped,” said ISA deputy chief executive Robbie Campo in a statement.
“Conflicted remuneration structures are the primary cause of poor advice in Australia, featuring in every major advice scandal of the past decade. If allowed to remain, they will continue to undermine the quality of advice and insurance outcomes for clients.”
None of the major insurance providers have responded publicly to the report as yet.
To read the full Trowbridge Report click here.
