The UK Government has admitted its retail distribution review (RDR) will push up the cost of providing advice and increase the underinsurance problem, Association of British Insurers Director of Consumer Strategy Maggie Craig says.

Speaking at the Financial Services Council (FSC) Life Insurance Conference in Sydney last week, she said the UK reforms and problems are no different to what Australian insurers are facing.

The cost of implementing the RDR has been estimated as costing insurers £1.7 billion ($2.6 billion) and that will be passed on to consumers.

“UK customers don’t like writing cheques for fees (to pay for financial advice),” Ms Craig said. “But the RDR will push up the cost of advice, which is the opposite of what the advisers have been trying to do.”

The cost of full advice to a client has been estimated as taking 7.5 hours and clients will be charged £670 ($1044).

“We have found two-thirds of UK consumers aren’t willing to pay for advice and the rest only willing to pay £200 ($311),” Ms Craig said.

“Therefore we will need a simplified advice process and we are working on this to put to Government.”

The simplified advice process being developed in the UK will take between 30 to 45 minutes and will involve a facilitator rather than a licensed adviser. The life insurance product would be simple with set amounts of cover.

“We have been lobbying the regulator for months,” Ms Craig said.

“We do support the RDR and we think it is the right way to go, but we are losing sight of the interests of our customers.”

The UK has a population of 61 million, but she says only 10% take financial advice, and this will drop further unless affordable advice is introduced. 

“Our simplified advice is not going to produce the best advice all of the time, but it will provide recommendations for customers,” Ms Craig said.