A report from ASIC yesterday into practices and advice within the life insurance industry has found that the level of advice Australians receive is sorely lacking.
ASIC looked at
- how life insurance is sold by advisers
- how advisers are remunerated for that advice
- the drivers behind product replacement advice to consumers, and
- the quality of the personal advice consumers receive.
Unfortunately they found that, “more than one third (37%) of the advice consumers received failed to comply with the laws relating to appropriate advice and prioritising the needs of the client.”
Given that a large number of Australians have life insurance as a way to protect their families, it’s no surprise that ASIC Deputy Commissioner Peter Kell said:
This is an unacceptable level of failure, and the life insurance industry is now on notice to lift standards and professionalism. Both insurers and advice firms need to work on delivering a consistently better service for consumers
Worryingly ASIC found that advisers are reacting to the incentives provided by high upfront commissions to push clients toward those products.
“High upfront commissions are more strongly correlated with non-compliant advice, including in situations where the recommendation is to switch products,” ASIC said yesterday.
Deputy Commissioner Kell said “The industry as a whole needs to consider how remuneration and compliance practices can better support good quality outcomes for consumers.”
ASIC also found that cost of life insurance are raised issues about affordability as the high ‘lapse rate’ suggested that policies were unsustainable.
Coming in the wake of the Financial Planning scandals recently, and given so many Australians have life insurance either direct or through their super, this is another example showing that higher standards and legislated hurdles around duty of care to clients re needed in order to incentise adviser to act in the clients best interest.
It’s taken for granted, but as ASIC found it’s not always delivered.
You can read the full ASIC review of life insurance advice here