ASIC has made a regulatory instrument capping life insurance commissions and specifying clawback provisions in life insurance advice, in line with the incoming life insurance commission changes. Background.
The Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017 was passed by Parliament on 9 February 2017, and amends the Corporations Act 2001 to remove the exemption from the ban on conflicted remuneration for commissions paid in relation to certain life insurance products.
The Life Insurance Remuneration Act also enables ASIC to allow commissions to be paid if requirements are met relating to commission caps and clawback.
The supporting Corporations Amendment (Life Insurance Remuneration Arrangements) Regulations 2017 were made on 9 March 2017. The Regulations prescribe circumstances where commissions are (or are not) considered conflicted remuneration, as well as prescribing circumstances where clawback does not apply. The Regulations extend the scope of the Life Insurance Remuneration Act to apply to direct sales and marketing of life insurance.
The ASIC instrument amends the Corporations Act 2001 to remove the exemption from the ban on conflicted remuneration for commissions paid in relation to life insurance products.
The Life Insurance Commissions Instrument:
- sets commission caps at 60% of the premium in the first year of the policy from 1 January 2020, with a maximum trailing commission of 20% of the premium in all subsequent years;
- provides for a transition period, with the commission cap set at 80% from 1 January 2018 and 70% from 1 January 2019;
- requires clawback of 100% of the commission if the policy lapses (i.e. the policy is cancelled or not continued, or the policy cost is reduced) in the first year, and 60% clawback in the event of a lapse in the second year;
- provides formulae for working out the commissions in different circumstances that have been contemplated, such as if there is a commission given because the policyholder has initiated an increase in the policy, resulting in a commission part way through the year;
- provides formulae for working out clawback amounts depending on when the lapse occurs.