The Quality of Advice Review has published a Conflicted Remuneration Paper which provides a snapshot of the data considered by the Review on exemptions to the ban on conflicted remuneration for general insurance and life insurance and puts forward proposals for reform.

The Paper observes, “The general insurance industry is changing, voluntarily and in response to recent changes to the law. We have been told that, as a result of these changes, many of the key contributors to the misalignment between industry incentives and consumer interests (such as volume bonuses and junk products) have ceased or will shortly cease. “

With respect to life insurance, the Paper notes that the commencement of the Life Insurance Framework reforms in 2018 resulted in a significant reduction in first-year commissions for all policy types between 2017 and 2021, with the average commission rate falling by approximately 20 per cent per dollar of premium, which corresponds to a 34 per cent proportionate decrease in the rate of commissions being paid.

General Insurance proposal

The Corporations Act currently provides exemptions to the ban on conflicted remuneration for benefits given in relation to a general insurance product and consumer credit insurance.

The Review Paper proposes retaining the existing exemptions for benefits given in relation to general insurance products and consumer credit insurance, but requires financial advisers (relevant providers), insurance brokers and other intermediaries who provide personal advice to retail clients in relation to general insurance products or consumer credit insurance to obtain their client’s informed consent, in writing, to receive a commission or other benefit in connection with the issue of the general insurance product or consumer credit insurance.

Life risk insurance proposal

The Corporations Act currently provides an exemption to the ban on conflicted remuneration for life risk insurance products (other than group life policies in superannuation or policies issued in respect of default superannuation members), which allows commissions to be paid for the sale of life risk insurance products. This allows advisers to receive the following types of commissions for advice
provided in connection with the issue of a life risk insurance product:
• Level commissions (i.e. where the upfront commissions is equal to the rate of ongoing commission); or
• Commission cap (i.e. 60% upfront commission and 20% trailing benefits)

The Review Paper proposes retaining the existing exemption for benefits given in relation to life risk insurance products, but requires financial advisers (relevant providers) who provide personal advice to retail clients in relation to life risk insurance products to obtain their client’s informed consent, in writing, to receive a commission in connection with the issue of a life risk insurance product.

The Final Review Report is due to be provided to the Government by 16 December 2022.

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