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APRA intervention blindsided AFA, FPA taskforce

At the Financial Services Council Life Insurance Summit, the heads of financial advice industry associations admitted to being blindsided by APRA's intervention on individual disability income insurance.

Association of Financial Advisers chief executive Phil Kewin and Financial Planning Association of Australia chief executive Date De Gori discussed the many reforms facing the life insurance and financial advice industries during the summit.

Kewin admitted the taskforce had been "a bit side-tracked" by the APRA intervention last year, and both Kewin and De Gori agreed there was overregulation in the area.

The financial advice associations had turned their efforts to a joint taskforce with the goal of raising awareness on the role of financial advisers in providing professional advice on life insurance. The taskforce also wanted to demonstrate that life insurance commissions have their place and can make advice more affordable.

On 2 December 2019, APRA intervened to improve the sustainability of individual disability income insurance in response to ongoing heavy losses. APRA said at the time that life companies had collectively lost about $3.4 billion in five years through the sale of individual disability income insurance.

"We know that APRA is the regulator for the regulated entities and the sustainability of the industry but ASIC is the regulator for the consumer," Kewin asked.

But, he said he wants to see joint regulation of life insurance between ASIC and APRA.

"In our opinion, where was the communication with both advisers and consumers about the impact this would have?" De Gori added, referring to the intervention.

He said APRA had not communicated clearly about the impacts of its sustainability work in life insurance on advisers.

"I think we have too many regulators, especially in the advice space," De Gori said.

On the new Design and Distribution Obligations De Gori and Kewin again agreed overregulation was a concern.

"I think it has great opportunity and the intention is right," De Gori said.

"I have to be cautious here. There are unintended consequences... we do have grave concerns that the obligation onus is going to be transferred to advisers, unfairly in our opinion."

Kewin agreed.

"There is a concern that when you have the manufacturers having to describe the target client it starts to make it very difficult from an advice perspective," Kewin said.

"That is one of our challenges across the board... the red tape we have at the moment is making each entity responsible but at the same time it's watering down the responsibility because there's so many parties involved."

However, Kewin did admit there were some positives to come out of the Life Insurance Framework (LIF) reforms.

"If you look at the key measures [of LIF] that were originally set out - lower lapse rates, reduced premiums and better customer outcomes were the three objectives... We know we haven't achieved that, but is that due to the Life Insurance Framework? Or is it because of the much broader issues impacting the market?" he said.

"The couple of positives that came out of LIF is that we do have a framework and in the Royal Commission, having that framework and a scheduled review for 2021 I think helped to avoid a potentially disastrous recommendation from the Royal Commission."

Read more: APRAASICFinancial Services Council Life Insurance SummitLife Insurance FrameworkRoyal CommissionPhil KewinDate De GoriAFAFinancial Planning Association of AustraliaFPA
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