The Association of Financial Advisers (AFA) is urging other key industry players to pull their weight to reform the life insurance sector, ahead of the Parliamentary Joint Committee (PJC) hearing this Friday 24 February.

AFA CEO, Brad Fox said the passing of the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 (the Bill) through the Senate two weeks ago means AFA members and other financial advisers have already carried their fair share of the life insurance reform load and the focus should now be on the other players.

“Advised life insurance continues to be the best way for Australians to get life insurance that they can trust,” Mr Fox said. “We expect the PJC members to be directing their questions to what else, beyond commissions, must be addressed in order to encourage more Australians to take out appropriate levels of income protection and lump sum life insurance policies. We also expect the PJC to have a keen interest in the poor relative performance of the direct and group life insurance channels.”

Mr Fox said the Life Insurance Framework (LIF) agreed with the Minister and other associations included obligations on life insurers, licensees and the regulator.

“We want to see the Code of Conduct adopted by the life insurers go much further than it has in order to ensure consumer and adviser protection,” he said. “Until life insurance in superannuation is appropriately included, consumers and advisers remain deeply exposed if insurers offer inappropriate incentives in order to win business.”

Mr Fox said direct and group insurance also need to measure up to community expectations by ensuring all underwriting is undertaken at the commencement of a policy agreement.

“Underwriting after a death or illness occurs is unconscionable,” he said. “Imagine the grief of a spouse who discovers that after paying life insurance premiums for months or years, a claim will not pay out on the death of their spouse and never would have been paid out.”

Mr Fox said the aim of life insurance reform is to increase consumer confidence and trust and therefore this kind of insurer behaviour must stop.

“Changing this at an industry level through the Code would be a clear sign to Government, public and media that the industry is serious about change. It would also mean that we don’t need a legislative approach.”

It should also be noted that life insurance arranged with the personal advice of a financial adviser is underwritten at the time of applying for cover which results in faster, straightforward payments at claim time.

The expansion of APLs beyond offering only one product in vertically integrated advice models is also essential, according to the AFA. “Advisers in such a business model are almost forced to walk a grey line between their own best interests and those of their clients.”

Another area where work needs to be completed is the simplifying of Statements of Advice (SOA)s for life insurance.

“We need to see ASIC complete their work on this,” Mr Fox said. “With a legislated Best Interests Duty, less commissions, higher minimum education standards and subscribing to a Code of Ethics becoming the norm, documentary proof of the advice being given must become simpler and easier to deliver to the client.”

Mr Fox argued that licensees and their legal advisers also need to buy into this area of reform to ensure SOAs are concise, easy to read and easy to understand.

“This will remove the need to hide behind disclaimers that clutter advice documents making them next to useless in some cases for the purpose of gaining informed client consent to proceed,” he said.