Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016

28 November 2016

I begin my remarks on this Corporations Amendment (Life Insurance Remuneration

Arrangements) Bill 2016 by saying how important this issue is for me and how I have been touched by a number

of victims in my own electorate. In 2011 I represented, in the Brisbane City Council, parts of Brisbane that were

devastated by the January floods. Homes, businesses and local communities were torn apart as a result. From

that, and listening to the heartbreaking stories of so many of my local residents, when I saw this issue come

before the House, I wanted to make sure that my voice was proudly and very strongly associated with reforms

on life insurance remuneration arrangements.

When you listen to victims, and the pain and heartbreak they have had to go through, it is incumbent upon every

single member of this House to do whatever they can to use the instruments at their disposal. I listened to the

member for Hughes talk about how government was not necessary, how you have to be careful about government.

If there was ever any evidence to suggest that government does need to intervene and government does need to

take a firm hand, it is in this industry. Those opposite talk a lot about government not being involved in people's

lives. I am yet to meet victims and people who are suffering greatly come up to me and say, 'Gee, I'd like a little

less government in my life.'

We serve communities around Australia, here in this place, and we have a job to do: to make sure the

most vulnerable, and those who need protection, get protection. The importance of life insurance cannot be

underestimated. I know, from talking to a number of my local residents, that life insurance is ensuring a peace of

mind and financial protection in difficult times, not just in times of natural disaster but also in illness, accident,

disability and, sadly, death.

When it comes to the provision of financial advice relating to the endorsement of life insurance products we do

support measures that increase quality, transparency, protections for consumers and reduction in the opportunity

for people to be ripped off. When listening to the member for Kingsford Smith, I was reminded of Labor's proud

record in the area of financial advice reforms. The FoFA reforms not only increased access to quality financial

advice but also gave the industry a stronger foundation for growth.

This bill removes the exemption contained in the act from the ban on conflicted remuneration. It applies a ban

on volume based payments to life insurance and includes grandfathering arrangements and, as we heard today,

a two-year clawback period, where a portion of the up-front commission is paid back to the life insurer by the

financial adviser if the life insurance policy is cancelled or the premium is reduced.

In preparing for today's debate and going through the ASIC reports I know there are 14 million group life

insurance policies, which are typically sold through superannuation; four million retail life insurance policies,

distributed by insurance brokers and financial advisers; and around 3.9 million direct life insurance policies, sold

through direct contact with a life insurer or affiliate, such as a bank.

The growth in non-advised and retail policy sales is important to acknowledge in today's debate. In 2013 nonadvised

policy sales totalled 3.6 million, and 3.8 million in 2014, and by 2015 it was up to 3.9 million. Retail

policy sales also experienced growth over the same period. The 2013 retail policy sales totalled around 3.6 million

and up to four million by 2015. These reports have indicated to Labor members why we need reform of the way

life insurance advisers are remunerated.

ASIC report 415 Review of retail life insurance advice identified a strong connection between up-front

commissions. I refer to page 43 of the policy. Looking at the graphs, and hearing the debate today, 45 per cent of

advice provided under an up-front commission model fail to comply with the law. At paragraph 90 of the report

82 per cent of industry uses an up-front commission model, and up-front commissions for advisers are generally

between 100 and 130 per cent of the product premium. A 2013 report by Rice Warner shows the average retail

term life insurance product, which pays a benefit on the death of the insured, is around $246,000.

While we support the bill we do hold some serious concerns about some aspects of it—namely, we do not believe

there are enough measures in it that may reduce incentives for financial advisers to endorse inappropriate life

insurance product. It would not capture misconduct on the part of insurers themselves, and we heard a number

of speakers today talk about the CommInsure scandal. The two-year clawback period is one year less than the

three-year period in the original industry proposal of 2015. Leading consumer advocacy group, Choice, said:

We are disappointed that today's announcement will allow advisers to hang onto their upfront commissions if they

seek to move a client to a new product after two years. Commission-driven churn is one of the major problems

in this industry and we think that provisions to claw back commissions should extend for at least three years

as originally proposed.

The package we are dealing with today stops short of the recommendations of the FSI and the Trowbridge review

to remove upfront commissions. The cut will initially be set at 80 per cent of the cost of the first-year premium.

It will go to 70 per cent in the second year to which the bill applies, before settling at 60 per cent of the cost of

the first-year premium up front. The package also caps ongoing commissions at 20 per cent, which I support.

Due to some of the changes that have occurred, the start date has been pushed back from 1 July 2016 and will

now be 1 January 2018. It appears the 60 per cent cap will now not be reached until 2020. I think that this is a

long time for the introduction of what is pretty much a basic reform, but we are seeing movement in this area,

and Labor will be supporting the bill. We supported the bill when it was first introduced to the House and when

it first came through this place on 3 March 2016.

I want to touch on some of the shocking cases that I have read about and that ASIC has outlined in its recent

Report 498: life insurance claims: an industry review. When you hear about some of these shocking claims, it

is nothing more than heartbreaking.

I read the case of a woman who was diagnosed with cervical cancer and, after receiving both radiotherapy and

chemotherapy treatment, was ill and could not work. The insurer had been paying monthly benefits but then

informed the policyholder that it had cancelled the policy as she had not disclosed that she had experienced

depression several years before. The insurer claimed that, had the policyholder disclosed her depression from

several years before when she applied for the policy, it would not have offered insurance cover under any

circumstances. The policyholder observed that the non-disclosure was innocent and that she had never been

depressed enough to require medication or time off work. Thankfully, the matter was resolved between the

parties, but the amount of stress that I can only imagine the policyholder would have gone through was


The other case was where a metal object accidentally lodged in a policyholder's heart, leading to cardiac arrest

and requiring open heart surgery. Apparently, this did not meet the policy definition of 'trauma' as, under the

policy, only heart conditions related to congenital conditions and/or out-of-hospital cardiac arrests caused by

arrhythmia were covered.

These kinds of examples, when you read them, see them and hear them, are clear evidence to me about the action

that we need to take. There is a need to have strong regulation and strong bodies in place to address the stress

and strain that millions of Australians could perhaps face. People need peace of mind that when they pay for

insurance for medical conditions their claims will be met.

ASIC's analysis of the dispute data, in light of insurers' claim numbers by share of claims, indicated that for three

insurers the number of disputes, particularly about heart attacks, was adversely disproportionate to the share of

claims. For example, one insurer's share of heart attack definition disputes was six times their share of claims.

ASIC also reports that a leading bank in Australia declined 37 per cent of claims for total and permanent disability

between 2013 and 2015 and declined 31 per cent of claims made under trauma cover.

There is a litany of dodgy practices that we have all seen through the media. There is the practice that we

heard about today of 'twisting and churning,' which the member for Fenner made remarks about. This is where

consumers are encouraged to cancel existing policies and take up new ones, often to their detriment. I read about

the case of a man in New South Wales who was twisted out of a policy three times in a 12-month period by the

same insurance agent, but when the man claimed costs for skin cancer treatment, he was told that it was a preexisting

injury on his new policy and he was refused payment under the policy. Sadly, a Queensland couple, both

of them pensioners, were sold a policy that excluded claims being paid to people on a pension. So, pensioners

are being signed up and are giving their money over, but the policy does not apply to them.

There is also a worrying practice that I have read about—the practice of 'tombstoning'—which involves agents

signing up dead or non-existent clients and secretly paying for their initial premiums just to pocket larger

commissions. These fraudulent applications for insurance are done simply to drive up the sales. Agents are being

pressured to sell as many policies as possible to win prizes, promotions and—as we heard about earlier in today's

debate—apparently, overseas trips.

Agents are falsifying or omitting medical, income, occupation or date-of-birth information simply to maximise

commissions, making the policy worthless upon a claim because insurers may refuse to pay out a policy if the

incorrect information is supplied. Agents are preying on residents in remote communities and, particularly in

Queensland, some of the Indigenous communities. Of course, we know the shocking case that was revealed

on Four Corners, where the whole financial services industry clearly demonstrated that it needed to be further

investigated, with doctors being pressured to change their assessments of customers, payouts being delayed to

terminally ill customers and, as I indicated before, heart attack claims being refused by relying on outdated

definitions inconsistent with current medical practice.

I have one thing to say about this: this is clearly about putting profits first. They are worried about the end dollar,

not the end product. Everything else comes a distant second. If these cases were not warning enough, were we

serious about consumer protection we would be having a royal commission into our financial and banking sector.

It is not good enough for excuse after excuse. Little wonder that there have only been two speakers on this bill

today. This is a serious issue. We heard the member for Hughes simply dismiss the need for a banking royal

commission because—in paraphrasing—'these things happen'. They should not happen. People who live in my

suburbs in the south-west of Brisbane were unfairly targeted through no fault of their own in the 2011 floods,

where their homes and literally their livelihoods were washed down the street. Their records, their photographs,

their lives were destroyed within a 24-hour period because people were sold incorrect policies. Some of the

people selling those policies were more worried and focused on commissions because that was their livelihood;

I understand that. Those who most need it, those who are vulnerable and those who need protection need quality

life insurance. They need protection to make sure that insurance is what it is and that they are not being robbed.

I will continue to support these reforms for a fair go for all people.