Why retail funds curb choice of life insurers

Why retail funds curb choice of life insurers

If you believe the rhetoric of the bank-owned superannuation funds and their lobby group, efforts to pry open the $555 billion1 default super market is driven by a desire to boost competition and ensure Australian workers have access to the best funds available.

The Financial Services Council, which is holding its annual Leaders Summit on July 25-26, wants the industry funds stripped of their monopoly on default fund provisions so employers can choose any of the 116 ‘MySuper’ products approved by the Australian Prudential Regulation Authority.

It makes sense then that the FSC and its members would support proposals to allow qualified financial advisers to choose the most appropriate insurance product for their clients from the list of 11 or so APRA-regulated retail life insurance companies.

Not so.

In fact, they’re lobbying hard for the opposite.

When it to comes to the battle for the retail life insurance market, the FSC is vehemently defending the institutions’ position that their aligned advisers should only have access to a limited list of insurers.

Bank-owned life insurance companies are the dominant, and in some cases sole, insurance provider on the Approved Product Lists (APLs) of their aligned advice groups.

It seems product choice is good public policy and serves the best interests of customers but only if it also satisfies the banks’ commercial interests, according to the FSC.

But competition, in no uncertain terms, is critically important. It spurs innovation, places pressure on fees, forces companies to continuously add value and exposes sub-par players.

Still, at a time when the financial services industry is under enormous pressure to address allegations of poorly-managed conflicts of interest, lax service and unacceptable claims outcomes, the vertically-integrated giants cling to restrictive APLs.

They are being empowered by the FSC’s Life Insurance Approved Product List draft standard which only requires its members to provide a narrow “range” of insurers.

The FSC’s argument is that Australian Financial Services Licences are liable for the advice and recommendations made by their advisers so, in order to protect themselves and their clients, licensees must put together a list of pre-approved products.  

That rationale is sound and justified for investment APLs. There are thousands of investment products in the market, some are risky and complex. Advisers can’t research and assess them all.

But there are only 11 APRA-regulated retail life insurance companies.

The only valid reason for restricting choice of retail life insurer is if the FSC and its members believe a number of providers are at risk of blowing up. If that’s not the case then limited APLs are an anti-competitive sales tactic designed to keep third party providers out and channel flows into inhouse products.

It’s time this racket was brought to an end.

Simon Swanson is Managing Director of ClearView Wealth Limited.

ClearView supports open competition.

  1. http://apra.gov.au/Super/Publications/Documents/2017QSP201703.pdf page 9