The Association of Financial Advisers (AFA) and the Financial Planning Association (FPA) want life insurance industry reforms to extend to insurers, not just advisers.

In its submission to the Senate Economics References Committee’s scrutiny of advice inquiry, the AFA calls for insurers to invest in technology, product innovation and process improvements.

This would deliver efficiencies for advisers, enabling them to offer a more cost-effective service, it says. Efficiencies should include a reduction in the time taken to implement recommendations for policy increases, data feeds that contain all significant policy information, and reduced underwriting turnaround times.

The AFA also wants improved claims procedures.

“We would expect productivity improvements in these areas will flow through to premiums, client and adviser experience, and ultimately the sustainability of the sector.

“A professional, competitive and robust life insurance advice industry is the outcome we are seeking from these reforms.”

The AFA calls for insurers to commit to participation in an industry working group to identify churners and tackle the issue. Insurers would share lapse data with licensees on an adviser basis, to help dealer groups monitor replacement business.

It says insurers should be allowed to report inappropriate or poor replacement advice directly to the Australian Securities and Investments Commission.

The FPA wants life insurance policy terms made easier to understand for consumers.

“We believe the principle should be insurance products are easily comparable,” the FPA submission says. “At present insurers define product features, definitions and standard terms differently. They compete over complex policy definitions, creating knowledge asymmetry for consumers… and all but the most skilled intermediaries.”

The FPA argues documentation across products is not easy to compare, with differing formats and orders of information.

“This all adds to a perception life insurance companies are hard to deal with by consumers, and adds to the financial disengagement and underinsurance epidemic in this country.

“The FPA recommends consideration be given to defining a standard for describing product features, use of standard definitions in product contracts and descriptions, and a requirement that insurance policy documentation should have a standard ordering.”

It says under current Future of Financial Advice legislation it is difficult and costly for advisers to comply with product comparison rules.

However, the AFA and FPA have come under fire from the Association of Independently Owned Financial Professionals (AIOFP). In its submission, the AIOFP says the pair have not properly represented independent advisers, which is what life insurance institutions want.

“Most institutions want to phase out the traditional and successful distribution channel of independently owned advisers acting as an intermediary with consumers to assist their decision-making process,” the AIOFP says.

“Independently owned advisers are compelled to act in the best interests of their clients and would reject the poor policy wording of the products institutions are selling directly to consumers.”

The AIOFP says institutions are working to remove independent advisers by slashing their commissions.

“Let there be no mistake with the objectives of the institutions,” the submission says.

“They used the institutionally aligned FPA and AFA to give a false impression they represented all industry stakeholders and then duped the [Finance] Minister into believing this is what the industry wanted.”

The AIOFP says the Life Insurance Framework changes “are precisely what the institutions want – the majority of the 17,000 advisers disagreed”.

“The likely result will be independently owned advisers leaving the industry, the nation’s underinsurance dilemma will continue, welfare liabilities will accelerate and consumers will be left to the mercy of institutional greed with limited choice,” it says.