New framework unlikely to work: PAA

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The government’s goal of increasing insurance cover with a new regulatory framework for the industry is unlikely to work, says the Professional Advisers Association.

Wednesday, December 13th 2006, 7:33AM

The PAA’s submission on the Review of Financial Products and Providers notes a primary aim of the move to greater regulation of the industry is to increase insurance cover, and says its main concern is that government policies in other areas are the main cause of this.

Policies in the area of accident compensation, welfare provisions such as sickness benefits and the domestic purposes benefit, along with the lack of a tax break for those who take out health insurance, are cited as the main issues.

“Secondly some insurance product groups such as life insurance are sold rather than bought …the majority of life insurance is purchased because an intermediary initiates the process with a consumer. Only in very rare circumstances does a consumer initiate the buying process. Due to this factor, increasing ‘confidence’ in the sector is unlikely to encourage greater participation by consumers.”

The PAA supports the proposal that all insurers have to carry credit ratings – at present, only insurers offering disaster and property insurance are required to do so.

Credit ratings provide a good “rule of thumb” for consumers and advisers, the association argues.

“If smaller firms tend to perform more poorly on these ratings basis (as was suggested in the discussion document), then consumers have a right to know that their claims paying ability is different to that of a larger organisation.”

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