Home / Life Insurance / Adviser group calls for dropping of ‘best interest’ obligation
12 October 2020
Synchron has called for the scrapping of the Best Interests Duty (BID) regulation that life advisers must comply with, suggesting consumers would be better served instead with a “requirement to provide appropriate advice”.
Director Don Trapnell says the legislation forces advisers to go through an extensive needs analysis process to produce a statement of advice covering clients’ financial situations when all they are seeking is an increase in life cover for a specific need.
“Ironically, the advice may therefore not be in the client’s best interests at all,” Mr Trapnell said.
While the legislation is aimed at protecting consumers, it has likely added to the cost of seeking professional advice about life insurance needs.
“A much better approach would be a requirement for life insurance advisers to provide appropriate advice, that is, advice that is in line with the advice the client is actually seeking, and actually needs,” Mr Trapnell said.
He says if the requirement is not scrapped more Australians will inevitably be forced to buy life insurance through direct channels, which may be less expensive but is not necessarily suitable for their needs.
“This is likely to ultimately see fewer people appropriately insured and the social security burden on the Government further increase,” Mr Trapnell said. “And as I have said before, that is not in anyone’s best interests.”
Synchron’s push for the Best Interests Duty regime to be scrapped follows a recent report from the Actuaries Institute, where the requirement was flagged as an area of concern.
The institute’s report, which suggests ways to address the ailing retail disability income insurance (DII) market, says there are no useful examples of the application of the BID obligation for life insurance.
The Australian Securities and Investments Commission (ASIC) has provided examples of how the duty can be applied in various circumstances, but there is nothing about life insurance, the report by the institute’s Disability Insurance Taskforce says.
“The taskforce considers it to be very important that ASIC provide practical guidance by way of examples on the application of BID for individual disability income insurance (and other life insurance),” the report says. “In particular, the taskforce feels it is critical that insurance examples are provided of BID in action.
“The taskforce feels that in the absence of examples from ASIC, the Actuaries Institute should work with industry to provide examples.”