The assumption that if consumers are provided with good information that they will act rationally and purchase products and services that meet their needs is not correct, NIBA has stated in its submission to the Financial Services Inquiry.
The association said information provision is only “limited part of the end solution” – the other part is expert advice from a broker, it said.
“NIBA respectfully submits that no amount of financial literacy and education programs will produce confident and informed consumers of risk insurance products,” the submission stated. “The community does not understand and appreciate the nature and extent of risk, and the community will never become familiar with the nature and extent of insurance products and policies that are available in the market.
“In these circumstances, NIBA respectfully submits that the only realistic way to achieve confident and informed consumers of insurance risk products is to promote financial literacy followed by the need to seek qualified, professional advice from a licensed adviser who is experienced and expert in risk and insurance matters In other words, an insurance broker.”
The submission says there has been a tendency for regulatory policy to be developed and applied on a “one size fits all” approach.
NIBA CEO Dallas Booth
said: “Too many times we have seen broad based regulations introduced, followed by amendments, carve outs, exemptions and other exceptions, because the initial proposal was not properly developed in the first place. We should be able to do better at this.”
Booth pointed to the Future of Financial Advice reforms as a key example of brokers getting swept into adhering to broad brush financial regulation that were to target issues with financial planners and investment advisers.
NIBA’s submission also says the inquiry cannot adequately address the financing of growth and prosperity in Australia unless it examines the financing of risk. The submission explained that little growth and prosperity occurs unless the owners and financiers of the activity obtain insurance.
Meanwhile, in its own submission, the ICA called for less restrictive prudential requirements and significant tax reform to improve the industry’s contribution to the economy.
The ICA said an excessive emphasis on prudential supervision can impact on insurance market efficiency and consumer prices. The submission emphasises the importance to the efficiency of the financial system of allowing insurers to price to risk.
The ICA argued governments should not intervene with policies that lead to the mispricing of insurance and the distortion of market efficiency.
It also urged a level playing field in regulation, including mandatory disclosure applying equally to aggregators as to directly licensed financial entities such as insurers. The FSI would be well placed to insist upon requirements to disclose commissions and payments payable when products are featured on comparison platforms.
On affordability issues, the ICA’s submission to the Financial System Inquiry contends that ad hoc policy efforts that result in mispricing of insurance for the purpose of helping governments achieve social objectives only serve to distort efficient insurance markets.
“Compromising an insurer’s ability to price risk accurately undermines the incentives for individuals and businesses to make sensible decisions in the light of the risks they actually face,” ICA CEO Rob Whelan said.
Tomorrow Insurance Business reports on an insurer’s submission to the inquiry.