The cost of retail advised insurance could be adversely affected by the Government’s changes to insurance inside superannuation with advised clients facing higher premiums, according to the Association of Financial Advisers (AFA).
The AFA has told the Senate Economics Legislation Committee review of the Government’s Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019 that it expects the key impact of the legislation to be a significant decline in the level of insurance in the group insurance market “which is likely to push up the cost of insurance for all remaining members”.
“This will naturally impact the competitive position of Group insurance, however it will also most likely push up the cost of all insurance, including retail advised life insurance,” the AFA submission said.
“We are also concerned about the negative impact upon Australian consumers and that there will be many people who will now experience a life insurance event without cover, who are seriously disadvantaged as a result,” it said.
The AFA warned that the reforms would lead to a substantial increase in the level of underinsurance and an increased reliance upon social security, “which unfortunately will deliver a much worse outcome, both financially and emotionally, for those impacted members”.
“These life insurance reforms appear to come from the ideological view that it is better to save a larger number of people a small amount of money, rather than protect a smaller number of people in the event of a life changing insurance event,” the AFA said.
“This is the opposite of the underlying principle of insurance, and a factor that we think requires much more debate. The consequences of this proposal will be a significantly worse outcome for the many people in these groups who experience a life insurance event, that they are not insured against, as a result of these reforms. This is a big decision for a Government to make.”
“It is also important to ensure that measures, such as this, do not have the overall impact of reducing consumer trust in life insurance. If this leads to a general perception that young people do not need life insurance, then there will be long term undesirable consequences for the Australian community and the economy.”