I would do anything for life, but I won’t do that
The Financial Advice Association of Australia (FAAA) addressed a letter to the Australian Prudential Regulation Authority (APRA) concerning the Life Insurance Data Transformation consultation. What does this have to do with the New Zealand market? A lot, in fact. Australian regulation has been an exemplar, perhaps, of what not to do.
Tuesday, January 30th 2024, 11:08AM
by Russell Hutchinson
The FAAA, representing financial advisers, emphasised the vital role of advisers in the life insurance sector, where over 50% of in-force life insurance premiums are placed.
They stressed the complexity of life insurance and the essential role of financial advice in aiding Australians to make informed decisions, noting the prevalent issue of underinsurance in the absence of professional guidance.
The FAAA's submission was critical of the recent changes and challenges faced by the life insurance industry. These include the exit of major banks from the sector, the introduction of the Life Insurance Framework (LIF) with commission caps and extended clawback arrangements, and the impact of the Protecting Your Super and Putting Members Interest First Packages.
Particularly noteworthy are the professional standards reforms mandated by the Financial Adviser Standards and Ethics Authority (FASEA), which include rigorous exam and education requirements for advisers.
Additionally, the FAAA highlighted the APRA's intervention in the Individual Disability Income Insurance (IDII) market, which has led to significant product changes across insurers.
These reforms and market shifts have resulted in a drastic reduction in the number of advisers providing life insurance advice, a decline in new business volumes, and a shift in the demographic profile of new clients.
The FAAA's recommendations for data collection focus on capturing the true state of the industry, including new business volumes, premium discounting practices, rate of premium increases, average policyholder age, and policy discontinuances.
They also emphasise the importance of underwriting data and the proportion of premiums reaching claimants, suggesting that these metrics are crucial for assessing the industry's sustainability.
Sure, in their critique, the FAAA underscores the need for efficient data collection methods to avoid additional costs to consumers, but the whole document eloquently summarises the damage done to the life and health advice sector over the last few years, by overregulation.
Why would the FAAA write this to APRA as part of a data submission?
They must keep talking about it, even though several of these points are really more relevant to ASIC, and some, more relevant to law makers, rather than law enforcers. APRA have some blame to shoulder, though, as their intervention in the individual income insurance market, however, necessary, has added to the woes of financial advisers in Australia.
FAAA must keep banging on this drum because regulators – of all types – still count.
A lot of anger is directed to our regulators too, and they too, must often quietly remind people that they enforce, rather than make, the law. But this defence has its limits.
Regulators are key partners for lawmakers and policy analysts trying to understand the sector. Their voice probably influences policy more than, say, an insurer’s voice, or even an industry association’s voice.
Questions you might ask about what happened in Australia is, looking back, comparing what has happened with what was forecast to happen in regulatory impact statements that would have been prepared at the time – have things worked out the way we were told that they would?
If we had known then, what we know now, would we have taken those decisions?
In Australia, perhaps, you could be criticised for being late with those questions. But their loss is our gain – we now have their example as one we can consider, let’s not follow it.
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