Quality of Advice final report: reviewer explains industry impact

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Quality of Advice Reviewer Michelle Levy has explained key aspects of her final report that would impact the general insurance industry, including the proposal to broaden the definition of personal advice, if adopted by the Federal Government.

Released last week, the report proposed expanding the term so that all financial product advice would be classified as “personal” and creating a good advice duty to replace the existing best interests requirement.

The idea is that such a change would mean a client’s personal needs and circumstances are taken into account when a general insurance product is recommended. Under the current model consumers who go directly to an insurer are told they are only getting “general advice” which means the product they are after may or may not be suitable for them.

“It’s most likely to make a difference with people who use a direct channel,” Ms Levy told insuranceNEWS.com.au.

“So it would mean that when they are making any recommendation to a customer over the telephone or online… that they would be giving personal advice and then that advice would have to be good advice… and it would have to be fit-for-purpose.

“In the case of general insurance that would be telling somebody that their home and contents insurance, that they probably need specific level of cover… so that kind of more relevant advice and recommendations. That’s what it would do.”

The Federal Government says it would consult widely before responding to the report’s 22 recommendations, including keeping exemptions to the ban on conflicted remuneration – an arrangement that allows general insurance brokers and life advisers to be paid a commission, but on the condition that clients must first give their consent in writing.

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Financial Services Minister Stephen Jones was quoted as saying in the Australian Financial Review that he will request “expert analysis and stress-testing” of the report’s proposals before taking it to Cabinet.

Ms Levy says she is not sure what is meant by “stress testing”.

“But if that means talking to industry participants to get a better understanding of what changes they would make to the services they provide to their customers and clients if the recommendations are implemented, this seems like a sensible thing to do,” Ms Levy told insuranceNEWS.com.au.

Consumer groups have hit out at the report but the industry, and brokers in particular, have responded favourably to the proposals.

National Insurance Brokers Association CEO Phil Kewin says he is “impressed that from a general insurance and broker perspective that there seems to be an understanding of the industry and what brokers do”.

“There certainly is the recognition throughout this report of the value of brokers,” Mr Kewin told insuranceNEWS.com.au.

He says the proposal to broaden the definition of personal advice will benefit consumers.

“I think it’s good for the client because it’s only reasonable that if the client knows that a provider has information relating to their personal situation or their objectives or needs, then when they are being given advice that those needs are taken into consideration,” Mr Kewin said.

“And I think that got muddied under the general advice warning [arrangement] where a client might go directly say to a provider like an insurer and think that because they know that information, they have taken it into consideration to recommend a product.”

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Click here for the report.