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Scaled advice not worth the cost, say insurers

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The general insurance industry isn’t willing to provide personal advice on its products because it would be too expensive, according to the Insurance Council of Australia (ICA).

In a submission to the Australian Securities and Investments Commission’s (ASIC) consultative paper on scaled advice, ICA says a major part of the “delivery to market” cost in this distribution channel is call times.

“Consequently, minimising the call time helps the insurer [to] manage premium levels.”

“The niche brands that do provide personal advice currently have built the extra cost into their pricing and systems.”

The dominance of call centres for selling direct retail general insurance products is a “deciding factor” as to why insurers are reluctant to embrace scaled advice, ICA says.

Its members are also concerned about the difference between general and personal advice.

“As a result of this uncertainty, the majority of general insurers operate a no advice or general advice only model, with the exception of some niche brands,” ICA says in its submission. 

“While guidance on the distinction between general advice and personal advice would be of assistance now, the general insurance industry is unlikely to invest in the systems changes and training required to commence giving scaled personal advice when the outcome of the Future of Financial Advice (FOFA) reforms is unknown.”

ICA says it’s difficult for general insurers to give advice on whether a product is appropriate to the individual without a fully developed personal advice model.

It argues call centre operators would have to train their consultants to remain strictly within their advice model rather than provide assistance on customers’ enquiries. 

“The difficulty with managing this communication is a fundamental impediment to general insurers giving financial product advice,” ICA says. “Many broad risks are covered by retail general insurance policies and there may be exclusions attached to a number of them. 

“It is not feasible in the cost-effective distribution of general insurance to have extensive discussion on each of these risk exposures.”

The council says it would be “prohibitively expensive” to script call centres for such discussions.

The Financial Planning Association (FPA) agrees that the more advice given, the higher the cost to the client.

In its submission to ASIC, the FPA says uncertainty surrounding scaled advice due to FOFA and the fear of prosecution has led to over-compliance for advisers. This is driving up the cost of advice.

“The cost of advice is a significant barrier to access for most Australians,” the association says.

“The more expensive advice is to provide, the more advisers look to high-net-worth clients in order to maintain the commercial viability of their business.”