ISA was responding to recent local media reports exposing poor performance in the domestic insurance industry, and claims the local life insurers and banks are lobbying the government to avoid a ban on commissions and design their own code of conduct.
“Rather than lobbying to reduce consumer protections, they (life insurers and banks) should grasp the nettle of reform and demonstrate genuine leadership,” said ISA’s chief executive David Whiteley said on Tuesday.
This week two major media outlets in Australia reported that claims managers at CommInsure, the insurance arm of the Commonwealth Bank, were delaying claims to dying customers or rejecting them based on outdated, and sometimes unobtainable, criteria.
“These scandals are causing harm to the Australian public, often when they are at their most vulnerable,” Whiteley said.
A report by the Australian corporate regulator, ASIC, in 2014 highlighted the significant financial damage suffered by consumers as a result of life insurance commissions, with a third of advice reviewed by the regulator failing legal requirements.
It also found that 96% of the poor advice was given by advisers paid under upfront commission models and noted that where an adviser is paid under an upfront commission model there was a statistically significant likelihood of that adviser giving advice that did not comply with the law.
As a result the Australian government has introduced new legislation to regulate commission payments made by life insurance companies to financial advisers.
In a recent submission to the senate committee examining the new Life Insurance Remuneration Arrangements Bill, ISA said the reforms on offer fell hopelessly short in addressing the core problem of conflicted remuneration.
Stronger rules needed
“Capping upfront commissions and reducing ongoing commissions may be an improvement on current practices but sends a message that commissions are acceptable in the life insurance market. They are not,” Whiteley said.
“Conflicted remuneration, if allowed to remain in any guise, will continue to undermine outcomes for consumers, as confirmed by a large body of evidence. We need reform that phases out commissions once and for all.
“In addition, it is critical that the regulator is given responsibility for the development of a rigorous code of conduct that will improve treatment of consumers including in claims processing.
“Currently, in conjunction with the government’s legislative package, the industry has been preparing its own code, without any public consultation. This is totally unacceptable,” Whiteley concluded.