Insurance brokers should not be burdened by regulatory reforms that are being developed for other sectors of the financial services industry, NIBA has told the Financial System Inquiry.
In its second submission to the FSI, NIBA CEO Dallas Booth argues that each of the key sectors in the financial services industry is different and the nature of the products and services is different. In particular there is a significant difference between an insurance product which provides protection for a person or their property, and an investment product.
The submission warns against a one-size-fits-all approach that created problems when both the Financial Services Reform Act and the Future of Financial Advice reforms were introduced and which led to repeated tinkering via exemptions and class relief orders.
“Of real concern to NIBA is that there appears to be the common use of the catch all term ‘financial advisers’ when discussing reform that in reality, is only needed in the financial planning space,” Booth says.
“The use of the term catches both types of adviser. There should be a clear distinction made between general and life insurance advisers and financial planners who advise in the investment space.”
Despite the parliamentary committee report which led to the FOFA package looking almost exclusively at financial planners and investment advisers, initially insurance brokers were swept up in the regulations despite there being no concerns identified with their performance or quality of advice.
Booth says the insurance industry had suffered from a lack of understanding by those conducting previous regulatory reviews.
“Hopefully this time around we will be able to explain the characteristics which make our industry different from other parts of financial services,” he says.
The Financial System Inquiry interim report also flagged a bigger role for aggregators and comparison websites. However, NIBA argues that these sites provide no clear consumer benefit because the basis of their comparisons leads consumers to focus on price rather than coverage and ASIC has expressed concerns about misleading conduct in this area.
NIBA supports the recommendation to rename general advice as “sales”, “marketing” or “product information” and to mandate that “advice” can only be used in relation to personal advice.
However, NIBA questions whether to allow single product or single issuer limited personal advice services. If it is allowed, special disclosure obligations should be imposed to ensure consumers are properly informed of the clear conflict of interest that arises in such cases.