In risk insurance, most APLs are better described as “banned product lists” as they are nothing more than a convention adopted by AFSLs to control their advisers.
An AFSL’s banned product list says a lot about that AFSL.
There are at least 29 recognised insurers/re-insurers in Australia. The Australian Prudential Regulation Authority (APRA) lists them as follows:
- AIA Australia Limited
- Allianz Australia Life Insurance Limited
- AMP Life Limited
- Challenger Life Company Limited
- ClearView Life Assurance Limited
- Colonial Mutual Life Assurance Society Limited (The)
- Combined Life Insurance Company of Australia Ltd
- General Reinsurance Life Australia Ltd
- Hallmark Life Insurance Company Ltd
- Hannover Life Re of Australasia Ltd
- HCF Life Insurance Company Pty Limited
- Macquarie Life Limited
- MetLife Insurance Limited
- MLC Limited
- Munich Reinsurance Company of Australasia Limited
- OnePath Life Limited
- Pacific Life Re (Australia) Pty Limited
- QBE Life (Australia) Limited
- QInsure Limited
- RGA Reinsurance Company of Australia Limited
- SCOR Global Life Australia Pty Limited.
- St Andrew’s Life Insurance Pty Ltd
- George Life Limited
- Suncorp Life & Superannuation Limited
- Swiss Re Life & Health Australia Limited
- TAL Life Limited
- The National Mutual Life Association of Australasia Limited
- Westpac Life Insurance Services Limited
- Zurich Australia Limited.
That’s a lot of insurers. And they have a lot of insurance products.
Which is the best life insurer?
Who knows? Some of these insurers are no longer writing new business. Others are very small, operating in niches. Some only handle re-insurance. Some are better at some things, but not at others.
It’s impossible to say which is the best life insurer.
And it’s just as impossible to say which life insurer has the best insurance policies, particularly since no one knows the future, and the insurer’s attitude to, and capacity to pay, future policy claims is the most important consideration. The glossiest PDS, the lowest premiums and the highest commissions are not much good if your client ends up with a declined claim.
Each insurer is heavily regulated. Two regulators are involved – ASIC and APRA, each with a separate but sometimes overlapping jurisdiction, and a long list of specific and general legislation and regulations to administer. Add in actuaries, accountants and auditors, and it’s a heavily regulated industry.
All insurers are OK and most insurance products are OK too
The heavy regulation means every insurer is basically OK. It follows that (almost) every insurance product is basically OK too. Every adviser should be free to recommend every insurance product. This is provided they believe it is in their client’s best interests and appropriate to the client, and recommending it does not subordinate their client’s interests to their own interests, and their AFSL’s interests.
Get a bunch of risk insurance advisers together and ask them which insurance product is best. It should be a simple answer, something like “this one because…”. But it’s not. The answer is always “it depends”, followed by a long list of variables which, in combination, mean every adviser has a different reason for believing a different product is best. At least for certain clients, today at least.
The answer will probably change tomorrow.
The bottom line, is all insurers are OK and most insurance products are OK too.
Banned products and APL bribes
Most AFSLs only allow two or three insurers on their APL. Most insurers, and therefore most insurance products, are effectively banned. Many more products are not on the list than are on the list. Most AFSLs ban most insurance products. Come on, they can’t all be that bad. Some hard questions must be asked.
Why do so many AFSLs ban their advisers from recommending most insurance products?
Why do so many AFSLs say advisers can only recommend products from two or three insurers?
The answer is obvious – money.
Most AFSLs only allow advisers to recommend insurance products where they or a related party, such as a shareholder, benefit financially from the adviser’s product recommendation.
By way of example, an AFSL may accept a payment from an insurer of say, $200 per adviser a year for ‘education and training’ costs in return for ensuring the insurer is only one of say, three insurers on its APL.
The claim it’s an education and training payment, and not an APL placement payment, does not wash.
Education and training costs would be incurred by the AFSL anyway. The payment’s effect on net cash flow and profit is exactly the same, whether called a ‘training subsidy’ or an ‘APL bribe’.
By way of further example, sometimes the AFSL itself does not profit, but a related party such as a shareholder does profit. That shareholder is also the product manufacturer, i.e. a bank or a life office and it wins financially every time an adviser recommends its products.
Often, this a virtually mandatory mandate, lip service is paid to one or two other insurers’ products, but if the rebel adviser wants to recommend that other insurer’s products, it means days and days of extra paper work for a one-off client specific limited consent from head office.
It’s a one insurer AFSL, even though it pretends otherwise.
Banned products and the Corporations Act
Both the above examples involve serious breaches of the Corporations Act. There are at least three clear breaches by the adviser:
- Section 961B, being the duty to act in the client’s best interests, which you have not done if you have refused to consider most of the insurers in the market;
- Section 961G, being the duty to provide appropriate advice, which you have not done if you have refused to consider most of the insurers in the market; and
- Section 961J, being the duty to prioritise the client’s interests, which you have not done if you have deliberately recommended a product connected to your AFSL or a related party.
If the AFSL has deliberately set things up this way, and it almost certainly has, the AFSL is breaching section 912A, which is the general section requiring it to run an effective and efficient AFSL.
The AFSL is also breaching section 961L, which requires reasonable steps to ensure advisers comply with the above three duties.
But it’s not on the APL, you say
There is nothing magical about an APL. They are not required by the law or by ASIC. The phrase ‘approved product list’ cannot be found in the Corporations Act, and it does not excuse otherwise non-compliant behaviour.
It’s no defence to say, “But my AFSL did not have the better policy on its APL”. That’s the offence, not a defence.
Most APLs are nothing more than a convention adopted by AFSLs to control their advisers and, in the context of risk insurance, are better described as ‘banned product lists’. They are, by omission, a list of products (usually most products) the adviser cannot recommend.
‘APL’ is a massively misleading misnomer. ‘BPL’ is a much better tag.
Terry McMaster is the founder and managing director of Dover Financial Advisers