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Are we seeing the changing of the Guard in the way insurance is sold?

By: admin|

Life insurance: why the FSC’s plans will unfairly punish financial plannersBy        Robin Christie                        |                        6/08/2012 12:00:00 AM                     

The FSC’s plans to shake up the way financial advisers receive commissions for selling life insurance have come under attack. Should you be concerned?

Amid much fanfare, the FSC launched its new life insurance framework at this year’s FSC Annual Conference last week, but the Association of Financial Advisers (AFA) has highlighted some major issues with the FSC’s plans.

Stating that the new framework would enhance the long term affordability of life insurance and reduce underinsurance, FSC CEO John Brogden said it “sets a new standard of self-regulation for life insurance and is a positive outcome for consumer access and affordability through lowering premiums over time”.

“This framework has changed substantially from the original proposal released in March following four months of consultation with our life insurance and financial advice network members, the Association of Financial Advisers, the Financial Planning Association, ASIC, APRA and individual financial advisers,” he added. ”It will help to address Australia’s chronic underinsurance problem by placing downward pressure on premiums making life insurance more affordable.”

However, despite being included in framework consultations, the AFA has come forward with a less than glowing appraisal of the FSC’s plans.

“A sustainable insurance industry is key to the long term benefit of all stakeholders, particularly consumers, and the FSC’s new framework is a solid first step in the right direction,” said AFA CEO Richard Klipin, “however there is much devil in the detail to now finalize and negotiate.”

“We thank the FSC for its consultative approach and willingness to engage key stakeholders,” he added. “As an industry, we own our response to the proposed framework. However, decisions which change the way advisers currently operate need to be founded on solid, robust data.”

Key among the AFA’s concerns is the effect that the framework’s proposed tiered commission clawback provision will have on adviser’s incomes.

The framework currently suggests that 100% of an adviser’s commission should be clawed back if the policy lapses within the first year, 75% if the policy lapses within the second year and 50% if the policy lapses within the third year.

The AFA has stated that, while it is reasonable to expect an insurance policy to remain in place for at least three years, there are two key scenarios that may impact this expectation and punish advisers unfairly:

  •   Change in client circumstances leading to lapses: The punitive impact of this on advisers needs to addressed.
  •   Innovation/better products: There are important implications for advisers who will need to comply with the best interests duty through this process.

The new framework is set to come into effect on 1 July 2013, and Brogden has stated that the FSC will now work with industry stakeholders and the government in its implementation.

“These changes will also effect every other business model such as Finance Brokers, Accountants and Real Estate Agents that have also added Insurance to their clients offerings”.

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