Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697633054919.pdf (Australia)
Dear Senator Williams, Thank you for listening to our concerns.

This email is a summary of the issues we feel are a concern if the LIF reforms continue in their current format.

Financial Industry Reform was about Consumer Protection and we are advocates of this directive, in fact we are in the consumer protection business.
Our concern is the recent proposed reforms under the Life Insurance Framework has ignored and risks a consumer’s protection of their lifestyle and assets through the financial relief provided by insurance following a significant health event.

Our practice provides ongoing advice to over 5,000 Western Australians and a cornerstone of our service is the success based commission from product providers who provide insurance to consumers.
As an example, the average premium for a 40 year old couple who want their $500,000 mortgage paid off, if they were to pass away unexpectedly, and $300,000 to either continue receiving some form of income or subsidise medical recovery costs, if they were to suffer a significant health event, would be between $2,600 and $3,000 depending on the insurer.

Currently we receive 100% of this premium as arranged with the insurance company.
In order to provide this 40 year old couple with the insurance they need we are required to undertake the following: 1.

Initial Meeting with Client (up to 2 hours of an Advisers time).

Regulatory documentation • Anti-Money Laundering and Counter Terrorism documentation including copy of ID • Privacy Policy and explanation • Financial Service Guide outlining who we are and what we do.

Client Information • Find out everything about the clients personal details.
• Identify their goals and objectives • Document their financial position as well as details about the their superannuation funds and insurance policies.

2.

Post Meeting (up to 2 hours of an Advisers and Administrators time) • Adviser prepares a file note of the discussions • Research to obtain the specific detail of the clients existing super funds and insurance policies.

Life insurance industrySubmission 55 3.


Prepare Strategy and necessary ASIC documentation (minimum of 14 hours to prepare) • Adviser determines the insurance required to improve the clients financial position and prepares strategy instruction.

• ASIC requirement for strategy to be provide in the form of a Statement of Advice (we charge a fee of $200-500 in the event the client does not proceed) 4.
Meet with client and present advice document (up to 2 hours of an Advisers time) • Walk through advice document with client ensuring they understand the advice before accepting and proceeding.

• Completion of applications and other documentation required by insurance companies to affect the insurance policy for each client.

5.
5.

Implementing the advice (up to 3 hours of an administrators time (20 mins / week per client following up documentation, average application takes 9 weeks to complete) • Submitting the application to the insurer until eventual completion • Obtaining and reminding the client to undergo necessary medical tests etc.

Consumers will be unprotected The Life Insurance Framework is proposing a reduction in the success based commission from 100% to a mandatory and legislated 60% by 2018.
As mentioned, currently 100% of the success based commission is paid to an Adviser to affect the insurance cover.

This amount effectively covers the cost of the advice.

The client pays nothing.

Based on the example above the $3,000 premium is the result of around 20-23 hours of time on implementing insurance for one couple.

Under the proposed legislation we would receive 60% or $1,800 whilst undertaking the same administration time, effort and care.
Given your background you know it is not possible for a practice to grow doing the same work or more work for less income.

There is no room for growth with this model.

Our only option is to invoice clients for the difference, an additional $1,200 in the example above, just to be able to continue to provide our services and sustain our staff.

We are in effect introducing an out of pocket fee to clients who understand and have no issues with the current structure (ie.
Their advice fee is covered by the success based commission).

In addition, I am unaware of current industries where the Government has legislated on reducing and capping the remuneration arrangements between businesses.

I see perhaps Life insurance industrySubmission 55 capping fees to and for Consumers, however this is an arrangement between 2 commercial entities, an Insurer and practice, which is being capped.
We are deeply concerned that we will be moving to a model where Consumers, who have always received advice funded via a product providers success based commission, will be forced to fund the advice themselves.

The majority of our clients are your average Mum and Dad in WA who are already in a tough environment with ever increasing living costs coupled with a stagnant economy and slow moving property and investment markets predicted over the next 3 years.
We feel consumers will simply not pay for the advice and will not have insurance.

The Government will have to provide financial assistance The benefits of insurance are real.

Our practice facilitated insurance claims totalling $5.8m to 28 clients in the past 2 years.

We are 1 practice.

In 2015, the Life Insurance Industry combined paid over $6.9 billion to 89,291 consumers.

If they had no insurance who would they rely on.


If Consumers cannot afford the advice and do not take up insurance what protection exists for their lifestyle and assets especially the financial relief following a significant health event ?
In such an environment, Consumers will be left with no choice but to rely heavily on Government benefits and in an environment where the Government is trying to move from a deficit to a surplus, the problem you will be creating if the proposed legislation is passed has been largely ignored, certainly unidentified and definitely underestimated.
On the one hand, the Government is spending time and money on consumer protection yet on the other hand legislating to put consumer protection afforded through insurance at risk.

Once again thanks for taking the time to look further into this and will be very interested in the final out come Kind regards Brendan Lynch Life insurance industrySubmission 55