Today the Parliament is addressing high upfront life insurance commissions by passing the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, said.
“The Turnbull Government is delivering real improvements to put the interests of consumers first by working with industry to address the remuneration practices in the life insurance advice sector,” Minister O’Dwyer said.
“A series of reviews, including the Government’s Financial System Inquiry, the 2014 ASIC Review, and the industry-led Trowbridge review found unacceptably high instances of poor quality life insurance advice being provided to consumers. The Government’s changes will reduce the financial incentive for financial advisers to churn consumers into new life insurance policies where there is no consumer benefit.”
The ASIC review highlighted a connection between high upfront commissions and poor consumer outcomes. The review found that in some cases, advisers were receiving high upfront commissions of up to 130 per cent of the premium, which has led to unnecessary product replacement.
These significant changes, which will commence on 1 January 2018, will:
- phase-down the upfront commissions paid to advisers to a maximum of 60 per cent from 1 January 2020, along with the introduction of a maximum rate of 20 per cent for ongoing commissions; and
- introduce a two year commission ‘clawback’ period, which will clawback 100 per cent of an upfront commission in the first year and 60 per cent of an upfront commission in the second year in instances of a policy lapse.
The reforms will apply to both personal and general financial advice as well as direct sales.
“These reforms give effect to the agreement reached with industry,” Minister O’Dwyer said.
“I would like to thank the Association of Financial Advisers (AFA), the Financial Planning Association (FPA) and the Financial Services Council (FSC) for their ongoing co-operation in the interests of consumers and the long term viability of the sector. These reforms will better protect consumers and enable the sector’s viability.
ASIC will have responsibility for implementing the commission cap and clawback arrangements as well as reviewing the effect of the reforms in 2021. If significant improvements to inappropriate policy replacement are not identified by the review, the Government will move to mandate level commissions as recommended by the FSI.