The Association of Financial Advisers (AFA) and the Financial Services Council (FSC) will form a working group to address issues raised in the Australian Securities and Investments Commission’s (ASIC) report on life insurance.

Other industry groups have also been quick to respond to the report, with the Financial Planning Association (FPA) saying it is not sure whether any of its members are among the 37% of advisers that ASIC says gave poor advice on life products.

Industry Super Australia (ISA) says the “damning report” confirms the case for scrapping amendments to the Future of Financial Advice (FOFA) legislation.

The AFA-FSC working group will consider retail life insurance product structures and distribution practices. FSC CEO John Brogden says it expects to issue an interim report in two months and a full report early next year.

“The financial advice and life insurance sectors will work together to carefully examine the findings and recommendations in the ASIC report and to assess all options to improve market practices and sustainability,” he said. “As an industry we will review the ASIC report and provide a considered response.”

AFA CEO Brad Fox says most of his association’s members provide advice on life insurance, so it is important the issues raised in the report are addressed.

“This is a key industry report and any report of this nature and magnitude needs to be comprehensively reviewed and analysed,” he said.

“It is vitally important for our members we consider all available options at the product, licensee, adviser and consumer levels to address the issues raised in the report.”

FPA CEO Mark Rantall says the report reinforces the need for professional standards.

“[Our] members are bound by a code of professional practice and, as a professional association, the FPA is a firm advocate for higher professional and education standards,” he said. “Irrespective of remuneration models, FPA members are bound by its code of conduct and are held accountable to this.”

ISA CEO David Whiteley says the report highlights “an unacceptable level of failure by sales-driven financial advisers offering inappropriate advice that does not put the best interests of consumers first”.

“The report confirms there is a systemic failure, which should ring serious alarm bells for our lawmakers,” he said. “There is now a clear pattern demonstrating that sales-based advice is costing consumers dearly.”

The ASIC report says lapse rates average 16.5% for commission-based sales, but it does not mention lapse rates for direct life, with anecdotal evidence suggesting they might be about 50% in the first year of policies.

Sam Kitchen, an insurance specialist with advisory group William Buck, told insuranceNEWS.com.au factors other than commissions drive lapse rates.

“We are seeing the cost of living driving lapse rates, but advisers can work through these issues with a client,” he said.

“Our lapse rate is 5.5%, because about five years ago the company introduced an ongoing service model involving regular progress meetings with clients. The low lapse rate for the firm can be attributed to the ongoing service model.”

Mr Kitchen says ASIC’s report also addresses the selling process, but not the role advisers play dealing with claims.

“Claims-handling is a large part of our work, and that is part of the ongoing cost.”

Forte Asset Solutions MD Stephen Prendeville says the ASIC report will have no impact on buying and selling life books, “but the level of activity is still below FOFA introduction days”.

He says risk books still command a 3.5 times recurring revenue multiple, based on lapse rates and policyholders. “The biggest impact on life books is the lack of supply, with the institutions often buying before the book comes to market.”