12 October 2016
Media Release - #2016091, 2016

In the role of: Minister for Revenue and Financial Services [19 July 2016 - 28 August 2018]

Key life insurance reforms to assist consumers

Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, today reintroduced legislation into Parliament to improve the quality of financial advice and boost consumer confidence in the life insurance sector.

The Bill addresses problems with remuneration practices leading to poor quality life insurance advice for consumers that have been highlighted in several independent reports including a 2014 ASIC Review of life insurance advice, the industry initiated Trowbridge Review and the Financial System Inquiry.

Following these reports the Government called on industry to affect genuine and sensible reform and this legislation gives effect to the subsequent industry agreement.

The changes include:

  • a three-year phase-down of upfront commissions paid to advisers to a maximum of 60 per cent, together with the introduction of a maximum rate for ongoing commissions of 20 per cent; and
  • the introduction of a two year upfront commission ‘clawback’ period, which will clawback 100 per cent of the upfront commission in the first year and 60 per cent of the upfront commission in the second year should a policy lapse.

These improvements will reduce financial incentives to replace policies where there is no consumer benefit.

The changes will commence on 1 January 2018, allowing them to apply across the industry to all advisers and removing the need for grandfathering arrangements.

The Bill also includes a change to provide the flexibility to capture a broader array of distribution arrangements – potentially even those where no advice is provided to consumers.

The Australian Securities and Investments Commission (ASIC) will be responsible for implementing the commission caps and clawback arrangements. ASIC will also review the life insurance advice sector in 2021 to determine the effect of the reforms.

This legislation closes a gap that was previously available in the regulation of financial advice following the FOFA reforms. Following these reforms, all consumers can have greater confidence that financial advisers are acting in their best interests when providing life insurance advice.