Will confused consumers veer to direct insurance?
The Financial Planning Association (FPA) has warned that the findings of the Financial System Inquiry (FSI) and other similar discussion impacting the life/risk sector may drive consumers towards direct and group insurance options.
In its submission responding to the final recommendations of the FSI inquiry and only days after the release of the Trowbridge Report, the FPA has pointed to the value of advice in the life/risk arena and warned of the need for clear-cut evidence before pursuing change.
It said that while conflicted remuneration structures did pose risks to the integrity of the life risk sector, they were not the only issue in life risk or in the insurance sector generally.
"Sustainability is one of the toughest challenges for the entire insurance market, and one of the key causes of rising premiums," the FPA submission said.
It said that while the FSI final report had produced a compelling narrative of how premiums might decrease due to a decrease in unjustified product switching, it had not addressed other systemic factors in the insurance sector.
"As such, we have seen little evidence that forcing a move to level commission will comprehensively reduce premiums for risk insurance, especially given that there are a variety of other factors to consider," the submission said. "If anything, the greater risk is that clients will move even further towards direct and group insurance, placing pressure on the courts and alternative dispute resolution (ADR) schemes as a result of claim underwriting."
It said the flow on effect on premiums for insurance schemes with automatic acceptance was that they would also rise as a result of a lack of confidence in direct insurance and in risk advice.
"The other possible consequence is that the uneven cost recovery timeline will force non-aligned risk advisers to consolidate, align with larger institutions, or perish," the submission said.
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