Matt Keogh (Burt, Australian Labor Party) Share this | Hansard source

It is quite surprising really that we are here today given that it was so many years ago that the Labor Party, in government, put forward the future of financial advice reforms, acknowledging then how important it was to tackle the link between remuneration and corruption of advice. Making sure that clients receive advice in their best interests has taken this long to resolve through this legislation.

Of course after those excellent reforms were put forward by the Labor government, one of the first things that happened upon the election of the Liberal-coalition government was that the government tried to roll back the FoFA reforms. The FoFA reforms ban many forms of conflicted remuneration for financial advisers including for life insurance policies that were held as group life policies. But other life insurance policies have remained exempt from the FoFA ban on conflicted remuneration.

Many speakers here tonight have spoken about some of the real world examples that have arisen from conflicted remuneration. Indeed only on Friday the Joint Committee on Corporations and Financial Services heard evidence from ASIC dealing with the issue of conflicted remuneration. Just what does about conflicted remuneration mean? What is a conflict of interest? What is really interesting in this sector is people who are vulnerable rely on expertise. They go and seek expert advice to look after their financial future. We have not nailed down a proper definition of a conflict of interest in this sector in all areas. It is very clear in other more established professions what a conflict of interest is and that is why we have and have had for centuries professional and ethical obligations in this sector and it is why it is so important to make sure that we rid the financial advice sector of conflicted remuneration.

Labor supports this bill on the basis that it modestly improves the protections for consumers with respect to life insurance products. It is a modest improvement. It reduces the capacity—it does not remove it—for conflicted remuneration. It is a good start. It is an improved outcome for consumers, this legislation. While recognising the need to lower under insurance rates in this life insurance industry, Labor also acknowledges the concerns consumer groups have raised that the bill does not go far enough. The bill does not go far enough in the two-year claw-back period, which really should be a three-year claw-back period.

The bill does not address the broader issues though in the life insurance industry such as those raised this evening in respect of claims handling and outdated medical definitions, which have all come to light through the Comminsure scandal and through the many other recent inquiries. In fact, only a number of weeks back as part of the economics committee we had both ASIC and APRA come to speak to us about inquiries that they had been undertaking in the life insurance industry. Some of the things that came out of that were shocking.

It was not just that we had 30 per cent rates of declining claims being made on these insurance packages but the thing that actually really troubled me in all of that was that ASIC did not want to tell anyone who those life insurers were. The reason they did not want to tell anyone who those life insurers were was because they were concerned about the validity of the data that they had generated, because, when they went to speak to the life insurers, the life insurers could not give them concrete answers to the questions. The thing about that that really troubled me was people invest in a life insurance policy, a financial product, not for their future but for the future of their partner, for the future of their children. They make an investment over decades of premiums to make sure that when something bad happens to them, if they lose their life early, that their family will be looked after, that their home will not be taken away from them.

What came out of the inquiry by ASIC and APRA—and APRA acknowledged this in our hearing—was that the records are not kept properly by these life insurers. APRA agreed and APRA is concerned. What does that mean for the potential regulation and the capacity of these life insurers to ensure that they are able to make proper actuarial assessments to make sure that if claims are made on life insurance policies that they are able to pay out. So when people have made decades of investment, paying premiums to look after not them but to look after their children, they need to know that that life insurer is able to pay out. They fundamentally need to know that. It is not just a matter of: have I complied with these strange terms that no-one would ever have predicted? It is not just a matter of whether a life insurer is interpreting its policy in a capricious manner but, also, are those life insurers going to be there at the time when the people need to call on the policy?

APRA tried to assure us that they have no fundamental concerns with these life insurers but they were concerned about their capacity to do their job at best practice, to manage their book. They do not actually know the rates at which they decline, the claims that are made on their insurance policies. As I mentioned, there has been a series of inquiries and a series of reports into this industry. They have shown the fundamental need to reform the way that life insurance firms are regulated.

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