Secret report calls for sweeping life insurance reforms

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The hardcopy of a confidential report into the $13 billion life insurance industry in Australia was allegedly couriered to insurance big wigs for fear of electronic copies being leaked.

The report identifies a dozen problem areas in the life insurance arena and calls for sweeping reforms, The Sydney Morning Herald reported.

Warnings about the impact of in-fighting within the industry over advisers’ commission payments, the conduct of product rating houses, and the increasing financial impact of ambulance-chasing solicitor claims feature heavily in the report, it said.

According to industry insiders, life insurance premiums are set to rise by around 50%. The industry currently generates almost $13 billion in premiums annually.

 Life insurance “churning”, whereby advisers encourage policyholders to frequently switch policies to generate more commission, continues to be a major problem according to advisers and product providers.

An average adviser receives about 90% and 110% of the first year premium commission on any new policy, and subsequently up to 13% of annual premiums for the entirety of the policy, Australian Financial Review reported. Nine out of 10 advisers use this model.

The article quoted Anthony Brown, the CEO of Noble Oak, who said many life insurers continue to add low-value features to their products in order to obtain higher grades from the ratings agencies and allow advisers to justify a switch to the new product.

“It is clearly difficult for many financial planners to act objectively and in their client’s best interests when the financial incentive is so high to sell life insurance policies,” he said.

The secretly delivered rumoured report is timely considering Treasurer Joe Hockey’s recent warnings that massive welfare spending is set to be slashed.

It is expected this will put greater emphasis on insurance to cover any unexpected changes in living standards or gaps in care.