The Financial Services Council (FSC) has released a report outlining its policy priorities, including for the life insurance and advisory sector ahead of the federal election, which is expected to take place in May.
The FSC says in the policy priorities report that it hopes the next parliament will ensure that every part of the life insurance industry is supported, as well as the financial advisers and pension administrators who work in the alongside insurers.
The leading body says it supports policy settings that ensure life insurance is accessible and affordable now and in the future; providing all Australian employees with access to simple, high-value life insurance through their superannuation; and promote high standards of customer service with meaningful consumer protections.
According to the FSC, the Life Insurance Framework (LIF), which is currently being reviewed by the Treasury as part of its quality of advice review, should be retained.
The LIF started in January 2018, ushering in a number of changes such as maximum commission caps and mandatory clawback in the first two years of a policy.
The FSC says it believes the LIF has improved consumer outcomes by reducing misaligned incentives and inappropriate policy substitution disclosed in an Australian Securities and Investments Commission report on life insurance advice in the UK. detail.
The peak body also referred to group insurance in the report, saying life insurance products offered through superannuation have been a successful policy for Australia.
“It provides a safety net for millions of Australians who otherwise would not have chosen or been able to purchase life and disability insurance individually,” FSC said.
“Group pension insurance is fundamentally the right policy framework for millions of Australians because, when provided to members on an opt-out basis, it helps significantly to tackle the problem of underinsurance in Australia.”
However, there are areas for improvement, such as ensuring that all members who pay for insurance can rely on their coverage should they ever have to make a claim.
The FSC says it has addressed this issue by implementing an enforceable standard that will remove occupational exclusions and restrictive occupation-based disability definitions in default life insurance coverage for retirement. The enforceable standard comes into full effect from January next year after a one-year transition period.
With regard to financial advice, FSC wants the abolition of the so-called safe harbor steps to comply with the rule of the obligation of best interest.
“Removing safe harbor steps should be the government’s first priority to enable a principles-based advisory model within the existing regulatory framework,” the FSC said.
“The steps impose specific obligations on the provision of personalized advice which must be followed to meet the best interests of the consumer.
“In practice, the safe harbor steps have resulted in a system in which meeting the best interests requirement has become a ‘tick box’ exercise.”
The FSC also wants the notice statement requirement to be replaced with a notice letter, which comes with evolving obligations to allow for less paperwork for consumers and less time to prepare while ensuring that advice is better understood and more specific to consumer needs.
Click here to learn more about the report.