Towards the end of last year, ASIC began preparations to request relevant documentation from major dealer groups around life insurance advice. This year is a vital year for the life insurance industry because it’s when ASIC will review the Life Insurance Framework (LIF).
The Federal Government had organised to this review back in 2017/18, when commission-based remuneration was in the spotlight. A lot has changed since then: in fact, the factors that caused the review have dissipated. The Hayne Royal Commission caused a chain reaction and fundamental shift within not only the wealth management industry but life insurance, too. According to the AFR, registered financial advisers have fallen in number by almost 50% from before the royal commission in 2018, and the cost for financial advice has gone up.
ASIC was to conduct a post-implementation review in 2021 to assess the impact of the LIF reforms. ASIC said that if “no significant improvement has been made on the findings reported in ASIC REP 413, there would be a compelling case to remove the exemption from the ban on conflicted remuneration currently afforded to the sale of life insurance products altogether.” Naturally, the major life insurers are nervously hoping that ASIC’s review didn’t go down the same path as the wealth management industry, by banning commissions on life insurance products.
The life insurance industry can breathe a sigh of relief after the government announced that it will conduct a combined review of the financial planning and life insurance industries in 2022. Financial services minister Jane Hume said it was ‘silly’ to have two separate reviews that could instead be combined into one. The Quality of Advice Review, which is the financial planning industry review, will also take into account the LIF, an important change given the significant overlap.
The move comes as a surprise as ASIC was well into its investigation having collected data from dealer groups since mid-last year and laying the framework for the review. ASIC will now be forced to hand all the work it has done to Treasury, which is said to be better-placed to assess the advice sector. Ms Hume said that while remuneration in the advice sector will “move closer towards an alignment with other professions” it didn’t mean that commissions would be banned. Instead, she said that FASEA (The Financial Adviser Standards and Ethics Authority) acknowledged commissions as being an acceptable form of remuneration for the life insurance sector.
Shadow Minister for Financial Services and superannuation, Stephen Jones, said “the issue with commissions is not their existence per se……. the issue is when they influence the advice provided.”
It looks like the insurance industry has been thrown a lifeline. For now, at least.