27 July 2020

Address to the Financial Services Council Life Insurance Summit

Opening remarks

Good morning everyone - thank you for inviting me to join you this morning.

Throughout the COVID-19 pandemic - as the Prime Minister and the Treasurer have acknowledged - a great strength of the Australian economy has been the resilience of our financial system.

We’ve also seen some of the most significant actions in response to COVID-19 involve the Government working closely with the financial sector and I’d like to acknowledge the FSC’s leadership during this time.

In particular, the Government welcomes moves announced by the FSC, on behalf of their members, to support Australians - including frontline health workers - with life insurance cover during the pandemic.

I’d also like to extend my thanks to the FSC for hosting this week’s online summit. Despite the challenges, it’s terrific that we can gather safely to discuss life insurance policy developments as well as broader issues in the financial services sector.  

I also understand that this week’s summit coincides with the FSC’s Life Insurance Awareness Week.

Life insurance is a significant part of the financial services sector in Australia, and often isn’t given much thought until a person needs to claim on the policy - in a time of need or financial distress.

Life insurance is considered a safety net - something that more and more Australians have sought since the arrival of COVID-19.

The concept of a safety net has underpinned the Government’s economic response to the virus. For example, JobKeeper is the largest economic lifeline in Australia’s history.

JobKeeper has helped to maintain links between employers and workers, support business cash flow, and provide income support during this pandemic.

And last week, we announced we will be extending this lifeline beyond September for additional six months, with some modifications.

It’s been so terrific to see all parts of the economy doing their bit during this crisis. Every part of the financial sector has come to table to support Australians and ensure that we will be able build a bridge to the other side.

Our banks have restructured loans and deferred mortgage payments. The insurance sector has proven it is willing and able to, and remains to support customers in times of need. And our superannuation funds have stepped up to the plate to efficiently implement the Government’s early release of superannuation scheme for those in financial distress as a result of Coronavirus. 

It’s this support from the financial sector, combined with Government’s economic response that has staved off the worst of the economic forecasts.

But we’re not out of the woods yet.

Life insurance during the pandemic

Coronavirus has impacted everyone and every business, and the life insurance industry is no different.

As I mentioned before, the commitment from life insurers, led by the FSC, to ensure that frontline healthcare workers were not prevented from obtaining life insurance was very welcome by the Government.

I also applaud the life insurers who have committed to the FSC’s initiative to ensure that TPD policy holders will not have their cover impacted if they lose their job, are stood down or have their hours reduced due to the pandemic.

Individual insurers have also stepped up - waiving pandemic exclusions and applying flexibility in the underwriting process where they can.

And social distancing is changing the way everyone is working - which flows through to how insurance claims are handled.

Looking forward, I think we can reasonably expect to see some effects of the pandemic on pricing. Events like pandemics can mean that people see an increased perceived value of life insurance, resulting in more requests for new or higher levels of cover.

Higher levels of unemployment will likely have impacts on TPD and income protection pricing and the ‘return to work’ process.

These things are likely to have flow on effects to the ever-present discussions about sustainability and affordability.

It’s likely we’ll see an increase in mental health related claims.

I know mental health is an area in which the FSC and its members are quite proactive in, so increased claims are will bring new issues to the fore.

These past few months have certainly been a challenge for the life insurance industry, and with cases increasing here in Melbourne, we’re still in the thick of it. But I’m confident the life insurance industry has the resources available to continue to support customers in need, and will work constructively with the Government to get to the other side of this crisis.

Early release and life insurance

I mentioned before the Government’s early release of superannuation scheme. We recognise that for those adversely affected by the effects of COVID-19, accessing some superannuation today may outweigh the benefits of maintaining those savings until retirement.

It was announced in the Treasurer’s July update last week that we will be extending this measure until the end of the year.

While this scheme has been very successful in providing a lifeline to millions of people who have found themselves in financial dire straits, a concern that has been raised a number of times has been the potential this may have on insurance held through superannuation.

With more than 70 per cent of Australians holding their life insurance through their super, it’s an understandable concern.

A piece of fake news I’ve heard repeated too many times however is that if a person’s balance drops below $6,000 as result of accessing their superannuation - funds will have to cancel their insurance under the Government’s Putting Members’ Interests First changes.

This simply isn’t true.

Of course, if an account does not have enough money to pay the premiums on an ongoing basis, then the coverage will not continue. In addition, super funds may have their own rules that require the cancellation of insurance on super accounts where balances are too low.

Insurance coverage should be something that people should take into account when they make the decision to access their super.

To help Australians make this decision, the Government has developed and made available resources on ASIC’s MoneySmart website.

Ultimately, it’s a decisions that individuals need to make for themselves, taking into account their own unique circumstances.  Clear and effective communication from funds to members about their insurance is more important than ever.

A professional financial advice industry

I don’t need to tell this group but reliable, high-quality financial advice has never been more critical as we work through the COVID‑19 pandemic.

And the Government’s reforms are designed to ensure that Australia has a vibrant and well-respected financial advice industry, now and in the decades to come.

That was the driving force behind establishing FASEA as part of the reforms in 2017, prior to the Royal Commission.

Under these reforms, FASEA developed new standards including:

  • compulsory education requirements for both new and existing financial advisers
  • supervision requirements for new advisers
  • a Code of Ethics
  • a program of professional development, and
  • an exam that represents a common benchmark across the industry.

Combined, these standards are a major step towards a professional industry, but we must strike a balance to ensure advice remains accessible when Australians need it most.

That’s why the Government passed legislation last month providing additional time for existing financial advisers to meet FASEA’s exam and education requirements.

This will provide welcome relief to financial advisers, particularly given the challenges of the COVID-19, not least the practical difficulty of participating in exams online or in person.

The extension of the exam timetable ensures all advisers, including rural and regional advisers, have an extra year to sit the exam.

Recognising the challenges presented by COVID-19, FASEA has also granted financial advisers an additional three months to meet their continuing professional development requirements. 

Of course, implementing professional standards is far from the only thing on the agenda at the moment.

Royal Commission life insurance recommendations

Before Coronavirus hit, the Government was full-steam ahead on implementing the recommendations of the Financial Services Royal Commission.

As you all know, implementing Commissioner Hayne’s recommendations represents a significant amount of work - for both policymakers and industry.

It is, put simply, a major package of reform that will lead to improved outcomes for consumers.

And I’m pleased to report that we have covered a lot of ground in responding to the insurance recommendations.

We have implemented the recommendation to extend unfair contract terms laws to insurance contracts - which is due to commence in April 2021.

And we have consulted on several other recommendations - and I thank you all for your contributions.

Deferring Royal Commission implementation

But in light of the impacts of COVID-19 we took the sensible decision to defer the introduction of yet to be legislated commitments by six months.

The deferral means you can devote your resources and focus efforts on responding to the significant challenges posed by the COVID-19 pandemic on your business, staff and customers.

Importantly, our announcement provides you with greater certainty and clarity around the Government’s commitments.

Let me run through the status on some of our remaining insurance commitments.

The Government agreed that hawking of insurance products should be prohibited and agreed to clarify the definition of “unsolicited” in the legislation. We released draft legislation and sought your views back in February this year.

Another major commitment involves removing the exemption that prevents insurance claims handling from being a financial service.

This means insurance claims handling activities will be subject to existing consumer protection and conduct requirements and regulatory oversight by ASIC. In particular, insurers will be explicitly required to handle claims efficiently, honestly and fairly.

The Royal Commission also recommended that Treasury consult on the practicability and likely pricing effects of legislating key definitions, terms and exclusions for default MySuper group life insurance policies.

We agreed to this recommendation and released a consultation paper in 2019 which received over 20 submissions. Based on the views put forward, we are currently considering our response.

And finally, I note the Royal Commission made recommendations relating to specific codes, including the Life Insurance Code of Practice.

The Government supports industry bodies like the FSC engaging with ASIC as soon as practicable - noting the pressures on everyone at the moment - to see that these recommendations are met.

Closing remarks

On that note, I’d like to again thank the FSC for inviting me to provide an update this morning.   You are a group that understands the importance of your role within our economy. And I hope that, together, we can continue to work though these challenging times.

I’d like to thank you for support, cooperation and engagement during this pandemic.

Thank you for welcoming me into your boardrooms, lounge rooms and spare rooms. I’m really looking forward to the interactive part of today’s webinar.

Thank you.