Mr PERRETT (Moreton—Opposition Whip) (18:27): I rise to speak on the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016. More than half of all Australians have some form of life insurance.
I know it is an important part of the way people make personal arrangements. I acknowledge all of the workers in the insurance industry generally. I got to know them a lot better during the 2011 floods—not so much the life insurance industry but the general insurance industry—after my electorate was hammered by the floods, and then I was Chair of the Standing Committee on Social Policy and Legal Affairs, which conducted two inquiries into insurance more generally, and I got to see behind the call centres, and see behind the policies and the processes, and to acknowledge the large number of people who make a contribution through the insurance industry.
The life insurance industry specifically generates more than $56 billion annually in premiums; it is very significant and very substantial. There are around 28 registered life insurers operating in Australia at the moment. The Future of Financial Advice, or FOFA, reforms implemented by the Gillard government provided a general ban on financial advisers being offered remuneration when they sold a financial product to a consumer—not something that is familiar to lawyers. I see the member for Perth is in the chamber; certainly in his former life as a lawyer, I guess, the idea of giving legal advice when you are 21 and still being remunerated for that when you are 61 has a certain appeal!
Mr Sukkar: Hear, hear!
Mr PERRETT: but it is not something that lawyers were able to achieve—and I will take that interjection from the other side of the chamber. Obviously, as lawyers, you are paid for the advice you give when you give it and that is the end of the matter but, with financial advice, there is the potential for your advice to be remunerated in the future. Then, in fact, you could sell your books in a way, and give that advice that you had given to someone else to still take payment for that in the future. That is not something that lawyers are familiar with but, as I said, the Gillard government brought in the FOFA reforms that ended much of that practice. Those reforms protected consumers from financial advisers who would act against their client's interests in order to gain remuneration on the sale of a product—or, I should stress, the possibility of that. There were some exemptions to that general ban, including where the benefit related solely to a life insurance product that was not part of a superannuation scheme.
Several recent reports have made it clear that further reform is needed to ensure that the consumer's interests are not being disregarded in the pursuit of greater remuneration for the financial adviser. The ASIC report Review of retail life insuranceadvice found that 82 per cent of the life insurance industry provides upfront commissions to advisers which are generally between 100 per cent and 130 per cent of the product premium. The Trowbridge review, which was commissioned by the industry itself, recommended a significant reduction in upfront commissions, and the Financial System Inquiry recommended to abolish upfront commissions altogether. I know this is a significant issue. I have met with seniors in my electorate, both at the regular morning teas and also at the big seniors morning tea I hold with the Macgregor Lions every year, where this has been raised as an issue.
The bill that is before the chamber removes the current exemption from the ban on conflicted remuneration for benefits paid in relation to life insurance products. ASIC will be empowered to make a legislative instrument to permit benefits for life insurance products to be paid to an adviser, provided certain requirements are met. The reforms in this bill go some way to addressing the concerns by reducing incentives for financial advisers to recommend inappropriate life insurance products, but Labor still has significant concerns that the clawback period in this bill is only two years—one year less than the original industry agreement. This means that financial advisers will get to keep their upfront commission even if they move a client onto a new product after just two years.
Mr Deputy Speaker Buchholz, from your work done in this area on the economics committee, you know that commission-driven churn is considered by consumer groups to be one of the major problems in the industry, but the bill does not address misconduct of the insurers at all. Earlier this year we were all appalled by the reported cases of people who were insured by CommInsure, the Commonwealth Bank's insurance arm, and were denied payment of their claims—and I should declare that I am a shareholder of the Commonwealth Bank and also a policyholder of CommInsure. One of the examples given was of a 46-year-old man who had a heart attack that was so severe his heart actually stopped, and he was revived by nurses with a defibrillator. However, his CommInsure claim was denied because his blood tests did not reveal enough of the protein troponin in his blood after the attack. The CommInsure policy included a definition of 'heart attack' that relied on a very precise measurement of troponin in the bloodstream before an attack that would be deemed to be a heart attack under the insurance policy. Experts in the field of cardiology were reported to say that it was not possible to diagnose the severity of a heart attack based on troponin levels alone. The definition was completely out of step with current medical practice but, sadly, many people were denied their claims because of this outdated definition that was inserted into the fine print of the policy.
Then there was one of the Commonwealth Bank's own employees who reportedly was fired after suffering major depression and post-traumatic stress disorder following a violent assault. In an appallingly insensitive episode, the Commonwealth Bank terminated the man's employment, relying on a psychiatrist's report which said that he was not able to function in the bank or the general workforce. When the man made a claim to the insurance arm of the same bank, it was denied by relying on the same psychiatrist's report, and insisting that he was capable of returning to work. The claim took 2½ years to assess, during which time the man, a good employee who had endured stress and damage, reportedly was forced to sleep in his own car—a sad state of affairs. It has also been reported that the family of a woman who died from an accidental overdose of prescription drugs was denied a payout on her life insurance. Despite a police investigation and a post-mortem concluding that the woman died of an accidental overdose, CommInsure told the family that the claim would not be paid, because suicide was excluded under the policy.
The Commonwealth Bank's Chief Executive Officer, Ian Narev, gave evidence to the parliamentary inquiry earlier this year, where he told the inquiry that CommInsure have now changed their definition of heart attack. But, despite the shocking revelations of consumers being denied their legitimate claims, Mr Narev told the inquiry that not one person had been fired from CommInsure. These companies, many insurance companies, are raking in billions of dollars each year in premiums, but it appears that getting them to pay out on a claim is almost as difficult as getting blood from a stone.
These are some of the systemic issues that this bill cannot possibly address. It deals with some of the culture issues in the banking and financial and insurance industry that have been a concern for many MPs on both sides of the House. In fact, I think the MP for Dawson has recently come out in support of the idea of a closer look, and I think that the New South Wales senator, Senator Williams, has also indicated support for a royal commission into the banking and financial services industry. Sadly, we are not seeing that here in the chamber of the parliament.
Australians have traditionally had confidence and trust in the fairness of our financial services industry, including the life insurance industry. We need to see that reinstated. We need to have confidence and trust in these institutions. Sadly, too often when we listen to the radio, we see scandal after scandal associated with the banking and financial services industries, and too many people have been affected. We have seen it in the bush, we have seen it in the city, and we have seen it in small business and in big business, too often. Too many people have been affected. Some have lost their savings that they have spent a lifetime accumulating. As MPs, we have all had people come and talk to us about some of those scandals—some that particularly affected those in Queensland. There is nothing more heartbreaking than hearing someone in their 60s or 70s say they made what appeared to be reasonably prudent investments, only to find out they were ripped off by people. And, if they are being ripped off by those associated with those major institutions, that is when good government steps in.
A royal commission into the banking and financial services industry would be empowered to do things that the current set of arrangements cannot. It would be empowered to examine issues including: ascertaining just how widespread instances of illegal and unethical behaviour are within Australia's financial services industry; how Australia's financial services institutions treat their duty of care to their customers; and how the culture, ethical standards and business structures of Australian financial services institutions affect the behaviour of these institutions. A royal commission could look at whether Australia's regulators are really equipped to identify and prevent illegal and unethical behaviour. It could find out about comparable international experience with similar financial services industry misconduct and best-practice responses to those incidents and other events that may emerge over the course of investigating the above.
Sadly, the Turnbull government's approach of calling bank executives down to Canberra once a year to have a cup of tea will not go anywhere near addressing these significant issues that I have detailed. Sadly, I cannot expect the economics committee, which is chaired by the member for Banks—I kid you not—and where the Liberal Party have the numbers, to have any effect on banking culture beyond the questioning of executives on a yearly basis, where they will be a little bit uncomfortable.
I know that many people in Moreton, not just retirees, have approached me about this issue. They have had concerns about banks. They have had concerns about the insurance industry. There is much more to be done in both of these sectors and there is much more to be done with this piece of legislation before the chamber.