The Assistant Treasurer has announced that the Government will consider industry retail life insurance commission reform proposals in the context of its response to the Financial System Inquiry.
The proposals are intended address problems identified in the Australian Securities and Investments Commission’s (ASIC) Report 413 Review of Retail Life Insurance Advice.
ASIC’s 2014 Report found unacceptable levels of poor quality advice, and a strong correlation between high upfront commissions and poor consumer outcomes.
The Financial System Inquiry recommended a level commission structure so that any upfront commission does not exceed ongoing commissions.
The retail life insurance industry proposes that the following changes be implemented by 1 July 2018:
“Adviser and licensee remuneration
This proposal is not intended to limit the industry’s current ability to operate on a level commission or fee-for-service basis.
1.Maximum total upfront commission of 60 per cent of the premium in the first year of the policy, from 1 July 2018.
2.Maximum ongoing commission of 20 per cent of the premium in all subsequent years from 1 January 2016.
3.Three year retention (‘clawback’) period, to commence from 1 January 2016 to apply as follows:
- in the first year of the policy, to 100 per cent of the commission on the first year’s premium;
- in the second year of the policy, to 60 per cent of the commission on the first year’s premium;
- in the third year of the policy, to 30 per cent of the commission on the first year’s premium.
4.Ban on other volume-based payments from 1 July 2016, with appropriate grandfathering arrangements, consistent with the Future of Financial Advice
5.Life insurance companies to offer fee-for-service insurance products to support advisers who wish to operate on a fee-for-service basis.
Transitional arrangements
6.Maximum total upfront commission of 80 per cent of the premium in the first year of the policy from 1 January 2016.
7.Maximum total upfront commission of 70 per cent of the premium in the first year of the policy from 1 July 2017.
8.Maximum total upfront commission of 60 per cent of the premium in the first year of the policy from 1 July 2018.
Quality of advice and insurer practices
9.Government to consider measures to widen Approved Product Lists by 1 July 2016.
10.Life Insurance Code of Conduct to be developed by the FSC by 1 July 2016. Similar to existing codes for Banking and General Insurance, the Code would set out best practice standards for insurers, including in relation to underwriting and claims management.
Better enforcement and monitoring
11.Ongoing reporting by life insurance companies of policy replacement data to ASIC to commence 1 January 2016.
12.Government to conduct a review of these measures by the end of 2018.
Industry efficiency
13.ASIC to review Statements of Advice, with a view to making disclosure simpler and more effective.
14.Government to consider developing a mechanism to rationalise life insurance legacy products, consistent with recommendation 43 of the Financial System Inquiry.”
