The Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 has been introduced into Parliament.
UPDATE 9 February 2017: Bill finally passed both Houses.
The Bill removes the exemption in the Corporations Act from the ban on conflicted remuneration for benefits paid in relation to life insurance.
However the Bill enables the Australian Securities and Investments Commission (ASIC) to make a legislative instrument to permit benefits in relation to life insurance to be paid, provided certain requirements are met. These requirements relate to the amount of allowable commissions and to ‘clawback’ arrangements, where a certain portion of the upfront commission is paid back to the life insurer by the financial adviser if the life insurance policy is cancelled or the premium is reduced.
The Bill also applies a ban on volume-based payments to life insurance and includes transitional (grandfathering) arrangements in the Corporations Act. Level commissions and fee-for-service payments are not affected by this change.
If the Bill is passed the changes will 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.
The changes will commence on 1 January 2018.
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.
The amendments cover situations where life insurance sales involve the provision of either personal or general financial advice. This means that the amendments include the sale of life insurance through direct sales channels. The Bill also includes the power for regulations to prescribe other circumstances where a benefit paid in relation to life insurance is conflicted remuneration even where no advice is provided.
Life insurance products affected include life insurance, total and permanent disability cover, trauma cover and income protection insurance.