The Financial Services Council (FSC) has called for extensive changes to existing advice regulations to address the life insurance coverage gaps facing Australians.

FSC last week released research to show how such reforms, if implemented, would lead to higher insurance take-up rate.

The research comes as Quality of Advice Reviewer Michelle Levy prepares her final report, which is expected to be submitted to the Federal Government by December 16.

“The Government has a rare opportunity to deliver affordable and accessible advice to consumers as an outcome of the Quality of Advice Review,” FSC CEO Blake Briggs said.

“FSC research shows how the unmet life insurance needs of consumers can be addressed by comprehensively reforming the regulatory framework, not just tinkering with it.”

He says if nothing changes, the number of life insurance policies held by Australians is set to reduce by 17% in the next five years, leaving many without cover when they need it.

“These [research] insights also suggest the benefits that a reformed financial advice framework can have across the broad range of financial services that consumers must navigate, from superannuation savings, to investing for the future for themselves and their families,” Mr Briggs said.

According to the FSC-commissioned research, around 15 million people are currently insured, collectively paying a total of $17.3 billion in group life and individual insurance premiums each year.

Under the current system, particularly with the projected flattening of adviser exits, ongoing lapses and the focus on higher value clients, the total number of in-force advised policies is expected to continue to decline.

If the trends continue, the underinsurance gap would worsen with a 17% fall in-force policies by 2027, the research by NMG Consulting shows.

The research says underinsurance is predominantly a function of how many policies are currently held by Australians.

The research also says commissions on advised life insurance remains an important component of adviser remuneration.

Less than 10% of life insurance advice are being placed without any commission as most consumers are not willing or can afford to pay an upfront fee for advice, despite Life Insurance Framework reforms to cap commissions.

Click here to access the report.