Professional associations relating to financial advice have produced mixed responses to a report which states that more than a third of the life insurance advice has not been appropriate.
The report was released today by the Australian Securities and Investments Commission (ASIC) and covered 200 pieces of life insurance advice drawn from nine licensees and 79 financial advisers, finding that 37 per cent of the advice given did not comply with the laws relating to appropriate advice and prioritising the needs of the client.
ASIC stated high up-front commissions were a leading cause of inappropriate advice and also played a large part in recommendations to switch products.
The regulator was also concerned about the high lapse rate for many policies stating it was related to the affordability of insurance and asking the life insurance industry to ensure that industry practices were sustainable.
ASIC deputy Chairman Peter Kell said the one-third failure rate was too high and it would be taking further action in some cases.
"This is an unacceptable level of failure, and the life insurance industry is now on notice to lift standards and professionalism. Both insurers and advice firms need to work on delivering a consistently better service for consumers," Kell said.
In response to the report the Association of Financial Advisers (AFA) stated it would form a working group with the Financial Services Council (FSC) to assess the report and examine ways in which the life insurance providers and advice sector could make changes.
FSC chief executive John Brogden said the ASIC report required a serious response from the industry and the working group would consult with regulators, government, advisers and product providers to find solutions.
The Financial Planning Association (FPA) in its response called for an examination of the products put out to market and said the report also highlighted the need to lift adviser professional standards.
FPA chief executive Mark Rantall said the report showed there were a number of the problems in the sector related to product design, regulatory barriers, pricing and public confidence in insurance companies.
"The issues of product design, distribution and embedded product commissions should be looked at by the product manufacturing sector as noted in the recommendations of the report," Rantall said.