Milton Dick (Oxley, Australian Labor Party) Share this | Hansard source

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 non-advised 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 insuranceadvice 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 unacceptable.

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 pre-existing 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.

See this speech in context