Insurers Embrace New Model Allowing 'Simple Advice'
Insurers Embrace New Model Allowing 'Simple Advice'
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General insurers have been given the green light to offer "simple advice" under a new model presented by Financial Services Minister Stephen Jones.
The Albanese Government's response to the Quality of Advice Review (QAR) final report includes this move, which has received strong backing from the insurance industry.
The Insurance Council of Australia (ICA) believes that this change will lead to clearer conversations between customers and insurers, resulting in improved financial outcomes for consumers.
The proposed model introduces a new category of "qualified" financial advisers who will be employed by general insurers. These advisers will provide consumers with guidance on less complex financial matters. The simple advice model will also extend to life insurers, banks, and superannuation funds.
Under this new framework, insurers and other financial institutions will take complete responsibility for the advice provided. Commissions and fees will be banned.
Treasury has stated that these new financial advisers will be trained and employed by financial institutions in response to a QAR recommendation. However, the Government is taking additional precautions not included in the QAR report. Qualified advisers will be subject to a "modernized" best interests duty rule, meet prescribed competency standards, and comply with other obligations.
However, two key proposals from the QAR report - expanding the definition of personal advice and introducing a good advice duty obligation - have been dismissed.
Financial Services Minister Stephen Jones asserts that these measures will expand the availability of advice under a new model that prioritizes high-quality, helpful, and safe advice for consumers.
He further explains, "Qualified advisers will focus on providing simple financial advice, and they will be prohibited from charging fees or receiving commissions. This will help ensure that their advice remains within the realm of simplicity."
Michelle Levy, the QAR Reviewer, expresses her satisfaction with the Government's decision to amend the law, allowing more individuals to access financial advice when needed. Additionally, she originally proposed an expanded definition of personal advice to provide clarity for advice providers and improve the quality of advice received by individuals.
"While institutions have access to more personal information about their customers and members, it is highly likely that much of the advice they provide is already considered personal, even without the recommended change to the definition," says Levy.
The ICA views the proposed revised regulations, which create a new class of "qualified advisers" and allow for less complex financial advice without full professional qualifications, as a significant improvement in access to information about simple insurance matters that are currently restricted.
These changes are particularly important considering the growing protection gap. Customers will now be better informed when choosing insurance that adequately covers the risks they face.
"Insurers understand their customers' frustration regarding the current one-size-fits-all approach," says ICA CEO Andrew Hall. "While the regulations implemented following the Hayne royal commission aimed to eliminate bad financial advice, they unintentionally limited access to insurance advice for most average consumers."
Industry experts are eagerly awaiting further details about the planned "modernized best interests duty" regime. The Treasury document provides minimal information about the specifics, but it is crucial to monitor closely as the revised duty will apply to all advice providers, according to the Government.
Published:Friday, 8th Dec 2023 Source: Paige Estritori
Please Note: If this information affects you, seek advice from a licensed professional.
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Knowledgebase
Incontestability Clause: A provision in a life insurance policy that prevents the insurer from voiding coverage due to a misstatement by the insured after a certain period.
