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Tuesday, 29 November 2016
Page: 4811


Mr KEOGH (Burt) (18:19): Last night when I was speaking on this bill, I was drawing attention to the series of reports that have shown the need for reform of the way that life insurance advisers are remunerated. ASIC report 413, Review of retail life insurance advice, identified a strong connection between up-front commissions, policy lapse rates and poor consumer outcomes. ASIC's report found, amongst other things: 45 per cent of the advice provided under an up-front commission model failed to comply with the law; 82 per cent of industry uses an up-front commission model; and up-front commissions for advisers are generally between 100 and 130 per cent of the product premium. More recently, ASIC report 498, Life insurance claims: an industry review, found: that the rate of declined claims in the industry, as I mentioned last night, was the highest for TPD cover, with an average declined rate of 16 per cent, and for trauma cover, with an average declined rate of 14 per cent, and a considerable variation in declined claims among insurers, with TPD denial rates being as high as 37 per cent for some types of cover. I mean, just think about the effect on families and individuals who have suffered catastrophic injury preventing them from working, and over a third being denied—having their claim on their insurance, that they have been paying premiums on for years and years, declined. It also found that the most common types of life insurance disputes were about the evidence insurers require when assessing claims, including surveillance, and delays in claims handling. And this has got to be one of the most easy insurance types to assess; it is pretty clear when somebody dies.

There were higher claim denial rates in relation to insurance policies sold direct to consumers with no financial advice, compared to policies sold through advisers and group insurance policies. The industry-commissioned Trowbridge review recommended several reforms for adviser remuneration, including a significant reduction in up-front commissions. The Financial System Inquiry recommended the abolition of upfront commissions and a move to level commissions, where the commission remains the same year after year.

I am hopeful that the inquiry of the Joint Committee on Corporations and Financial Services into the insurance industry—and I am a member of that committee—will shine some light on these broader issues in the life insurance industry. The committee has been tasked with reporting on: the need for further reform; an assessment of the relative benefits and risks to consumers of the different elements of the life insurance market; whether entities are engaging in unethical practices to avoid meeting claims; the sales practices of life insurers and brokers; the effectiveness of internal dispute resolution in life insurance; the roles of ASIC and APRA in reform and oversight of this industry; and many related matters. This process will no doubt assist in drawing out more issues required to be addressed to fix life insurance, TPD and income protection insurance industry, as well as financial services and banking, generally, and related to them.

Let me be abundantly clear: only a royal commission will get to the bottom of the broader, systemic cultural issues in the banking and financial services sector.