ASIC has a focus on life insurance advice because it is of critical importance to the long-term financial wellbeing of Australian consumers. Life insurance is a key product through which consumers manage risk for themselves and their families.
Quality financial advice helps consumers identify their life insurance needs and find appropriate and affordable products that meet those needs.
This report reviews the advice consumers receive about life insurance. It builds on other work we have done focusing on the quality of retirement advice and advice about self-managed superannuation funds (SMSFs)
Consumers purchase life insurance in one of three ways:
- through an advice provider (adviser)
- directly from an insurer; or
- through their superannuation fund and the group life cover offered by the fund.
This report focuses on the first distribution channel only—that is, distribution through personal advice. It presents the findings of our research into, and surveillance of, advice about life insurance. Our purpose in this project was to better understand:
- how life insurance is sold by advisers;
- how advisers are remunerated for that advice;
- the drivers behind product replacement advice to consumers; and
- the quality of the life insurance advice consumers receive.
Conducted between September 2013 and July 2014, our research project involved two phases:
- industry roundtables and a survey of 12 insurers that manufacture and distribute life insurance products under personal advice models (phase 1); and
- a targeted surveillance of advisers who give personal advice to consumers on life insurance products, which involved a review of 202 advice files (phase 2)—our surveillance targeted advisers who sell a large amount of life insurance products.
This work builds on action we have taken to remove poor Australian financial services (AFS) licensees and advisers from the industry where we have found problems with life insurance advice. In these cases, we found evidence of poor life insurance advice that resulted in considerable detriment to consumers, including:
- evidence that advisers failed to adequately consider their clients’ personal circumstance and needs, leading to situations where consumers received inferior policy terms, paid more for cover, had health issues excluded and, in some cases, had claims denied where they previously had cover; and
- evidence of unnecessary or excessive switching of clients between policies to maximise commission income, with a failure to consider or recommend insurance that reasonably correlated to clients’ personal circumstances or objectives.