The Federal Government has introduced the new Life Insurance Framework legislation into Parliament.
Tabled as the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016, the legislation will give effect to what Minister for Small Business and Assistant Treasurer, Kelly O’Dwyer, refers to as what have been industry-agreed life insurance improvements: “In November last year life insurance peak bodies reached agreement on the implementation of these changes to improve the quality of advice and increase consumer confidence in the life insurance sector,” said Minister O’Dwyer.
In a release announcing the tabling of the legislation, the Minister again referenced one of the underlying principles on which the legislation was drafted, namely the alignment of the interests of all stakeholders in the chain that starts with product manufacturers and end with consumers: “The legislation builds on the Government’s commitment to better align the interests of financial firms and consumers by addressing the conflicted remuneration arrangements that were exempted under the FOFA reforms for life insurance.
“Currently life insurance advisers are paid high up front commissions up to 120% of the first year premium with low trailing commissions. This can provide a financial incentive to advisers to replace policies even where there is no consumer benefit,” added Ms O’Dwyer.
The Assistant Treasurer confirmed the 1 July 20126 commencement date for the transition to the new arrangements, containing the controversial remuneration arrangements including:
- A three-year phase-down of upfront commissions paid to advisers to a maximum of 60 per cent from 1 July 2018, together with the introduction of a maximum rate for ongoing commissions of 20 per cent
- The introduction of a two year commission ‘clawback’ period, which will claw back 100 per cent of a commission in the first year and 60 per cent of a commission in the second year should a policy lapse
Minister O’Dwyer noted “These changes strike the right balance between consumers of life insurance while recognising the need for business viability and industry stability.
if significant improvements are not identified the Government will move to mandate level commissions
She also confirmed the Government would consult with ASIC on the regulations that will support the legislation “… to ensure the reforms are implemented as efficiently and effectively as possible.” Ms O’Dwyer said ASIC will be responsible for implementing the commission caps and clawback arrangements, and that it will review the sector in 2018 to determine the effect of the reforms.
The Assistant Treasurer also reaffirmed earlier statements she has made that if significant improvements are not identified the Government will move to mandate level commissions, as recommended by the Financial System Inquiry report.
Click here to access the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016.
The 2300 licg members will be fighting some aspects of this to the 11 th hour . Stay tuned . Commission rates and claw backs top 2 items . please join up risk advisers .
What significant improvements are ASIC looking for, as it appears Commission has been the main focus, with little emphasis on improvements to processes and efficiency from the Life Companies to bring the massive time and costs that practices must endure when finding clients, Fact Finding, doing the analysis, quotes and reporting, further appointments and if successful, underwriting, finalising and maintaining the Retail Life policies.
Then to attempt to keep clients happy and policies on the books, needing to spend countless hours calming clients down who are confused and furious when they receive correspondence from the Life Company they cannot understand, except for the letter that tells them very clearly that their premium is rising by 10% or more, with little reasoning and validation as to why they should keep the policy.
Most adviser practices do not have 50% profit margins and if the owners take a market salary based on their experiance, then the real profits are substantially lower.
If the truth is to be a factor in future discussions, then reducing commissions by up to 50% over the next 2 years, will wipe out all profits for most practices unless there is massive efficiency improvements from the Retail Life Companies.
Then the final death knell will be a further reduction in commissions if things do not improve. ( What things? )
Considering that the argument of churn being the main villain around sustainability, has been proven invalid, where does that leave advisers?
It’s those 0.40% of all FOS complaints that’s driving all this remember! 🙂
The LIF framework was “introduced” last week. I hear that maybe the introduction didn’t go as smoothly as anticipated. There has been complete silence since then. Maybe, just maybe, sanity has prevailed inside the liberal party room. There could be a lot more probing, discussion, and amendments before we know the final outcome. All advisers need to keep asking their local liberal elected members if they have ALL the facts. The truth may finally be starting to emerge.
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