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Financial Services Royal Commission Final Report – what’s next?

By now all of you would have read a multitude of opinions on the impacts arising from recommendations in the Final Report of the Financial Services Royal Commission. From Eric’s perspective, there were no surprises in this Report and the critical need to focus on customer outcomes was emphatically reinforced across the entire Final Report.

From the issue of the three ASIC reports on the add-on insurance space, the first being in February 2016, we recognised that the industry needed to shift its focus to positive customer outcomes and that this aligns with strong relationships with our intermediaries to support such outcomes.

The Report highlighted the lack of good culture, governance and focus on the customer by many financial services organisations and that the pursuit of reward has caused a misalignment with positive customer outcomes. The insurance industry needs to be committed to get this alignment back on track. We are committed to do this and have been for quite some time.

The report also highlights four key outcomes which affect the way retail insurance is sold through distribution networks:

1. The introduction of a deferred sales model (DSM) for the sale of Add-on Insurance.
The details of how this will work are yet to be defined. Eric has led the way on preparing for this change through its engagement with industry and regulators. The Genesis sales system is designed to accommodate a DSM when it comes into force and we will continue to consult with ASIC and Treasury in the formulation of the detail to apply.

2. A recommended cap on commissions.
In many respects this is already substantially in play with many insurers implementing a 20% commission cap. As to whether a cap will be legislated and the level of the cap to apply are still to be confirmed.

3. A removal of the current exemption of conflicted remuneration bans for general insurance.
This covers all forms of volume-based incentives, although the details of how the ban will be applied specifically to general insurance is too early to tell. Eric have already undertaken a review of the level and style of commissions paid and will continue to consult with ASIC and Treasury as they undertake their review on this issue to be completed by December 2022.

4. Recommendations pertaining to Duty of Disclosure, Reasonable Care and the inclusion of the claims process as a ‘financial service’.
Eric are supportive of these recommendations and we are awaiting further details on what is proposed in this regard.

The Report was silent on ASIC’s submission that the Tyre and Wheel product be banned. We believe that the reason for this is that the Product Design and Distribution Obligation legislative recently passed in Parliament will ensure standards for all financial products of good product design, features and value for customers with a clearly defined target market determination. Where there is significant detriment to consumers, ASIC will have the power to intervene to the extent of banning a product from sale or prescribing the distribution channels through which a product may be sold.
These powers will not only apply to all financial products but also to those which currently do not fall under the definition of “financial products” in the Corporations Act.

At Eric, we are supportive of this approach and are currently reviewing all of our products, including Tyre & Wheel, to ensure that we are satisfied that they meet these standards and have good customer outcomes.

We have established and are maintaining good working relationships with the regulators and government to respond to the recommendations and to work through the implementation of these outcomes.

We will continue assisting our distribution networks with thought leadership, relationship management, training to ensure a customer centric sales process and prepare them for what these changes may bring.

Eric Insurance is well placed to seize the opportunities offered in this environment to improve culture, governance, our relationships with our partners and to ensure we all have the customers at the heart of everything we do.

Malcolm Tilbrook
Chief Executive Officer