The extra cost of the Life Insurance Framework legislation to consumers and advisers will be $1.8 billion a year, according to the Life Insurance Customer Group (LICG).

In a submission to the Parliamentary Joint Committee on Corporations and Financial Services’ life insurance inquiry, the group says consumer costs will rise by $1.2 billion and the cost to government in social security payments will rise $400 million.

The extra cost for advisers is put at $225 million.

It says the cost to consumers is based on 10% of adviser clients moving to more expensive direct insurance rather than paying for advice.

It expects an increase in government services supporting people who are unable to claim under direct policies due to extensive exclusion clauses. It believes there will be a dramatic increase in Financial Ombudsman Service cases as direct insurers refuse claims.

The LICG predicts the premiums of adviser-sold policies will increase by 10% over five years to cover the cost of new regulations.

There is also the cost of redundancies in the advice industry, estimated at 17,000 jobs, and it forecasts a net $225 million-a-year drop in revenue to small advice practices.

The drop in adviser numbers will hurt the Government due to a reduction in tax from salaries, the submission says.

“We strongly urge Treasury to complete a full and independent financial impact study into the effects this proposed legislation would have, because the one provided to date does not reflect the reality of the situation,” the LICG says.

The group says Treasury’s estimate of the regulatory burden on the advice industry is $27.8 million, offset by an equal amount of benefits, delivering zero cost impact.

“Treasury has grossly underestimated the financial impacts,” the submission says.