ASIC Releases Commission and Clawback Instrument

ASIC has released the regulatory instrument which will set the commission caps and claw-back arrangements under the Life Insurance Framework (LIF) reforms.

ASIC Deputy Chair, Peter Kell

ASIC Deputy Chair, Peter Kell

The regulator stated the ASIC Corporations (Life Insurance Commissions) Instrument 2017/510 will give effect to the Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017, which allows commissions to be paid for the sale of life insurance and was passed by Parliament on 9 February 2017.

While the details of the commission caps and claw-back arrangements have been public for some time the Life Insurance Commissions Instrument is the formal regulatory measure that will set caps on commissions and timeframes and amounts related to claw-back.

As such, the Life Insurance Commissions Instrument:

  • will set 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 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.

ASIC Deputy Chair Peter Kell said the commission caps and clawback requirements under the LIF reforms were important steps in improving the quality of advice.

“ASIC is warning advisers against inappropriately switching clients into new policies prior to this commencement date where this is not in their clients’ best interests,” Kell said, adding the regulator was using data from insurers to identify any advisers engaging in this behaviour.