The Federal Opposition will support the introduction of the Life Insurance Framework (LIF) legislation but has questioned whether two-year clawback arrangements are sufficient to prevent churning.
Shadow Minister for Financial Services and Superannuation, Jim Chalmers stated in Federal Parliament that while the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 were step towards improving consumer protection, the Labor Party remained concerned about aspects of the bill.
“One concern is with the clawback provisions in the final package. The clawback provisions are limited to the first two years of a life insurance policy. We do not want to see financial advisers pressure customers to unnecessarily change their life insurance policy after two years as a result of these changes,” Chalmers said.
“One concern is with the clawback provisions in the final package…We do not want to see financial advisers pressure customers to unnecessarily change their life insurance policy after two years as a result of these changes.”
He stated another of concern was around the calculation of the commission and the inclusion of stamp duty in that calculation, with the details of any calculations to be included in accompanying regulations which have not yet been released.
“This could become the first time that a commission may be paid on government taxes and stamp duty, which could be a very troubling thing,” Chalmers said.
He said that while it was excluded in draft legislation it was included in the current bill due to industry concerns around the costs of excluding it, a situation the Federal Opposition would like to see addressed.
“Labor would like to see the regulations which will accompany this bill either exclude stamp duty and government taxes from the calculation of commissions or to set out a timetable to achieving this outcome which would be acceptable to industry. The regulatory impact statement in the bill was revised upwards to $27.8 million from $18.2 million in the draft bill to reflect the additional costs of systems change, so we would like to see this borne out in practice,” Chalmers said.
However, even if the bill is passed Chalmers indicated the Labor Party was likely to re-examine the sector at a later date.
“Despite these concerns, Labor does support the passage of this legislation that will make incremental improvement to the life insurance remuneration structures. We know that that view is not universal in the sector or in the community but we think all of these bills are on-balance calls and we think, on balance, this bill is worth supporting. But we must use these changes as an opportunity to consider the industry more widely.”
Chalmer’s position was echoed by the Financial Services Council (FSC) which urged the adoption and implementation of LIF as soon as possible.
“The FSC supports the reforms to life insurance advice, which followed the Trowbridge review, designed to improve advised life insurance. These reforms are a step in the right direction in removing conflicts from the industry,” FSC, Chief Executive, Sally Loane said.
“The relevant legislation has bipartisan support and is currently before the parliament. We urge swift passage in the sitting week beginning 13 March.”
LIF “…does not deliver any substantive consumer protections although that is a primary objective of the bill”.
However, the Liberal Member for Forde in the House of Representatives, Bert van Manen stated in Parliament that he would not be supporting the legislation brought by his own party claiming that it would inflict damage on independent financial advisers and “that it does not deliver any substantive consumer protections although that is a primary objective of the bill”.
He also queried why the legislation did not define ‘a lapse’ and labelled ASIC’s 2014 Report 413 as “at best sloppy analysis and at worst a deliberate attempt to misrepresent the data to obtain a predetermined outcome” due to its failure to identify what percentage of policy lapses occurred because of churning by advisers compared with shifting policies for a better client outcome.
Van Manen added that while he was pleased the bill had been referred to the Senate Economics Legislation Committee for further consideration, he was disappointed that no public hearings would be held by the committee.
This one liner is the story to come if ALP win Government in 2016.
“However, even if the bill is passed Chalmers indicated the Labor Party was likely to re-examine the sector at a later date.”
= Nil Risk Commission
Bert van Manen deserves great credit for trying to be the voice of reason in this debate. As a former adviser himself he understands the impact these regs are going to have on small advisory practices if they go through in the current form. The ‘rest’ who are gunning for even less commercially realistic or sustainable reforms will inadvertently lead the market into even more instances of the Comminsure debacle as reported on 4 Corners. Consumers need to be able to access affordable non aligned advice… the current model allows for that – while some tweaking to tighten replacement rules may be necessary the changes go ‘way to far’… Risk advisers need to stand up and be heard…
Good on you Mr Chalmers, let’s make it near on impossible for non-aligned self employed advisers to continue in business. I re-checked most recent life office quotes done for clients and then ran the life office commission calcs. No comm payable on stamp duty on any of them. This said, I’m perfectly happy to be able to receive 60% of the total premium including stamp duty, frequency loadings and policy fees. If I don’t, the real commission rate on monthly paid business falls below 50%. The fresh conundrum at present is replacing an old Trauma CommInsure policy with a new one from another life office. I’m not talking about churning. Guess what, Troponin 2mg or greater is part of the new policy Heart Attack definitions [with some, not all]. The very criticism raised on Four Corners by medical experts and whistle blowers remains part of some modern day “advised” Trauma policy wordings. Until the FSC and its members get their act together, what hope have we and our clients got?
Wow, Mr Chalmers, you are well suited to your position. As another “mushroom” in the ALP, we know how you survive, in the dark & fed BS.
No one is going to be pressured to change policies unless as we have witnessed in recent years with one Life company that increased their Group Life rates by 85.0% which is 30.0% higher than their retail offering. Or when another company over a 2 year period increased their premiums on legacy products by 53.0% because the benefits on the old policy were better than those offered by the new one.
The client’s initiated the change because they didn’t want to be “screwed”
If you were really qualified to be in that position, you’d know what really goes on and it’s the Life companies under the guise of the FSC who have conned you all. Why else would they be pushing so hard to have these LIF changes implemented. There’s only one beneficiary to these changes, it isn’t the client or the adviser by a long shot.
Bert van Manen, you are to be congratulated for standing up to to these recalcitrant despots who want to ruin the lives of many just to satisfy some warped ideology.
Lets clean shop.
No pensions for life for parliamentarians….Lead by example ALP.
Typical labor, no understanding of business and they attack their union bosses competition. Given the industry funds garbage TPD and IP contracts THEY should be very quiet….but no problems for them the MSM & their ABC will never attack their bruvvas
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