The Life Insurance Framework legislation will be reintroduced into Parliament in the next three months with the Minister for Revenue and Financial Services, Kelly O’Dwyer confirming it will cover direct insurance.
Responding to questions put to her office by riskinfo, O’Dwyer stated “The Turnbull Government will reintroduce the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 in the Spring sittings”, which are due to run from 30 August to 1 December and during which both houses will be sitting.”
If the Government is targeting a likely start date of 1 July 2017, this suggests it would introduce the legislation earlier in the Spring sitting period to allow the legislation time to progress through both Houses of Parliament and become law before the end of the year.
Importantly, Minister O’Dwyer confirmed that direct insurance would be covered by the legislation, which would still impact up-front commissions.
The legislation applies to personal and general advice, which includes direct sales channels…
“Under the reforms upfront advisers’ commissions will remain but will be scaled down while level commissions and adviser fees remain uncapped,” O’Dwyer stated.
“The legislation applies to personal and general advice, which includes direct sales channels,” she added.
The confirmation ends industry speculation that a carve-out had been gained by life insurers through the Financial Services Council and reaffirms comments made by the Minister in November 2015 when she announced the release of the second draft of the LIF legislation.
Prior to the most recent Federal Election the LIF legislation had passed through the House of Representatives and had proceeded through a number of readings in the Senate before being passed to a committee for review.
The committee recommended the Senate pass the legislation as it stood stating the bill contained provisions to ensure that consumers could access unbiased and appropriate advice when purchasing life insurance.
It is still not a level playing field, where a Direct product flogger who does none
of the best interest duties, no Fact Find, no proper consideration, no SOA, can
still get the same commission percentage as advisers who do all of the above,
which also means Direct product floggers can receive more revenue than full service advisers, due to the fact people pay up to 50% more for inferior products.
It also takes us back to step one, which was the cause of all the smoke screens and
mirrors, the matter of churn.
Once again, churn has never been clarified or quantified except for the statistics that point to up to a 40% lapse rate in the first year from direct product floggers.
As it stands we the advisers who do all the best Interest work, will be penalised
with an extended 2 year writeback, no matter what the cause. E.g. Life Company
increases premiums 25% on 2nd anniversary, we get a 100% writeback.
This is another part of the LIF legislation that is unacceptable.
If the adviser churns, then yes, cop a writeback. If the Life Company Is the perpetrator with premium hikes, or a policy lapses with no adviser cause, then the 1 year writeback must continue.
Further to that Jeremy, the numbers around ‘churning advisers’ had the spotlight put it on last week via this very website in the article “Adviser Churn Numbers Based on Poor Insurer Data’ which confirmed that ‘real adviser churn’ was probably only around 2%.
Is there an industry ANYWHERE in the world where a similar percentage of unscrupulous behaviour doesn’t exist?
This is just BS and I have no doubt someone, somewhere is getting an under the table pay off to get these reforms through. DISGRACEFUL.
Miss O’ Dwyer answer this if you can?
If a client cancels an IP policy due to redundancy 18 months in on a $2K p.a. policy and has paid say $3000 in premiums, and if the adviser is to cop a 100% clawback of his $2,000, then isn’t the new laws just going to be adding $3,000 to the banks profit line?
Wouldn’t you say any submissions by the FSC in the LIF are therefore a conflict of interest?
Miss O’Dwyer here are a few simple facts.
1. Factual data has proven that the issue with “adviser churn” is incorrect and that the facts have been purposely misled by the FSC.
2. Customers now having to pay fees to access independent risk insurance advice is in the consumers WORST interest and will force many to have to buy over-priced and poor quality products directly without adequate advice.
3. Factual data has proven that direct insurance is where the lapse rates are highest, have the highest levels of claim denials and account for most complaints which is where your reforms will be forcing customers.
4. The FSC has been hounded by both advisers and journalists to demonstrate one consumer benefit under the LIF and have been unable to do so.
5. There is no industry agreement as you incorrectly state. Members of both the AFA and FPA are not in agreement with the LIF forced upon them by the FSC’s blatant threats and heavy financial funding. There has been no member vote by either the AFA or FPA and currently the AFA has been forced to call a EGM by members to withdraw support for the LIF.
6. The only beneficiaries of the LIF are the FSC members who will increase profits at the expense of customers and advisers.
And a very simple question. If the LIF is a worse outcome for consumers then why are you backing this without any proven data or consumer benefits checks?
Hey ‘Reality Check’, I hear your pain brother and I’m with you.
Can I suggest sending her these points at: kelly.odwyer.mp@aph.gov.au
I did a similar thing earlier today.
Come on guys, despite all the comments which are largely factual, it could have been a lot worse….. If you have to factor in possible write backs into your business model, just do it.
I’ll be very pleased to have this in law to give us some certainty thanks Kelly. I hope it passes the cross bench as it is now, I guess that’s not a given.
Far from it I hope unlike your views there are many of us that don’t want to give up just yet!!!
It could not be worse unless the 3 year clawback was adopted Without a better structure the future will be 20/20 commissions if we are lucky More like a fee for service that will I have no doubt will occur when this commission structure is deemed to be unsuccessful This is what the FSC are aiming for in the future
Don’t kid yourselves this is a capitalistic plan and all plans take time to come to fuisan Unless you are going to retire within the next 3 years you are going to struggle It is the way of the world apparently ? He who has control of the dollar will rule !! I only hope that the LICG can stamp some normality into all of this and have it presented to the government for what it is before the banks run the country not the government
Yet another sad and silly statement from someone I guess has had enough ? Don’t give up yet I Risky at heart it not over yet
It could be worse – they could have banned commission altogether and implemented fee for service on risk.
I’ve not given up Ken, I’ve moved on. Hardly silly or sad 🙂
It’s easy to say “It could have been a lot worse” but to me that’s laying down and just copping it. If you don’t stand up for what you’ll believe in, you’ll fall for anything is my motto.
I suspect you’ve made your money and are pretty well established. I’m not worried about you – its the new advisers in the future I worry about. These reforms will screw new advisers and stop the industry from growing. I definitely wouldn’t have joined the industry 8 years ago if 60% plus GST was all I was allowed to paid. Besides that, the basis for them is completely agenda driven and not facts based.
If you think these reforms will stop new entrants in to the advice arena because they are “only going to be paid 60%” you are ill-informed on the innovative engagement strategies young / new advisers are bringing to the market place. Please don’t be worried, new advisers couldn’t care less about what level of commission they are going to be paid, they are looking well beyond a commission driven reason to join the industry…….Quality advice
BINGO!
You think that applies for Risk Only advisers though? At the end of the day we all run businesses, so if an industry is burdened by high compliance and little reward for effort (not to mention risk this also carries) then I would have thought it would deter new entrants.
Lots of assumptions there…
You may not recall that ALP were on the fringe of cancelling ALL insurance commission on a few years ago. Therein the reason for my comment about how it could have been worse. If the ALP had won government this would have been the outcome imv.
Its not a matter of copping anything, I’m being pragmatic.
John has hit the nail on the head about the future of our industry.
Time will tell gents. The UK apparently repealed their ban on commissions because of the dire consequences it had on the life industry there. I doubt the ALP banning them altogether here would have lasted had they had their wicked, wicked way.
So there is nothing to stop life offices paying 50% level commission if they chose to !
Thanks I will.
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