As the mortgage broking industry increasingly looks to diversify, brokers should be cautious about an ASIC crackdown on life insurance advice.
The watchdog claims that the industry needs to improve the quality of advice and ensure that the interests of consumers are given priority after it found that more than a third (37%) of the advice consumers received failed to comply with regulation governing a consumer’s best interest.
Peter Kell, ASIC’s deputy chairman, said quality life insurance advice needs to be more consistent across the board, given that it is an important product for consumers to protect themselves.
“This is an unacceptable level of failure, and the life insurance industry is now on notice to lift standards and professionalism. Both insurers and advice firms need to work on delivering a consistently better service for consumers,” he said.
ASIC says that commission and remuneration structures may be the catalyst. The review found that high upfront commissions are more strongly correlated with non-compliant advice, including in situations where the recommendation is to switch products.
Affordability is also an issue that came out of the review, showing cases where clients were recommended insurance cover that was likely to be very difficult to afford given their financial circumstances.
ASIC has made a number of recommendations for insurers, AFS licensees, advisers and their professional associations, including a focus on how to ensure client interests are met and balancing the issue of affordability versus cover.
“ASIC is committed to working with the industry to address the problems we’ve identified and to improve outcomes for consumers,” Kell said.
“Where inappropriate advice was provided we are considering enforcement action or other regulatory action,” he added.