The Federal Treasury has released draft regulations for the Life Insurance Framework legislation providing some clarity around clawback provisions and the grandfathering of existing policies.
The draft regulations also allow for a 12 month transition period around some areas of stamp duty to allow time to create system changes to exclude stamp duty at the end of the transition period.
The details of the regulations, released by Treasury on 7 April via its website with an explanatory memorandum, are also open to consultation until to April 28.
“…the regulation prescribes that clawback does not apply in situations of self-harm, suicide of the insured”
The memorandum covered clawback in two areas – self harm and reduction in health risks of insured – stating clawback would not apply in these areas.
Specifically, the memorandum stated “the regulation prescribes that clawback does not apply in situations of self-harm, suicide of the insured” or when a policy was cancelled because the insured reached an age where cover was not provided or due to the insured being incorrectly described.
It also stated that clawback would not apply where the policy cost was reduced as a result of a reduction to the health risk of the person insured, such as quitting smoking, or by reductions in policy costs via rebates or discounts offered by insurers to encourage policy consumers to take up and retain their life insurance cover.
The memorandum also stated that grandfathering of commission benefits has been considered for policies issued prior to the introduction of the LIF framework or for those issued up to three months after the start date of LIF if the application had been made prior to that date.
This would also apply to benefits gained under employee employer remuneration arrangements entered into prior to the commencement of the LIF reforms and would be broadly consistent with grandfathering arrangement under the Future of Financial Advice reforms.
The grandfathering would also cover the exercising of options under an existing insurance product if it was held before the commencement of the LIF reforms with the memorandum stating “this reflects that work relating to developing the option for additional coverage was undertaken before the commencement of the reforms”.
The draft legislation will also provided some clarity around stamp duty but only covers that relating to death benefits stating there would be a 12 month transition period in which stamp duty may be included in the calculation of commissions, while changes were are to exclude it after that time.
No one has ever said how these changes will benefit consumers. Yet there is plenty of evidence that LIF will hurt consumers and the advisers acting in their best interests. Can someone in the AFA, FSC or one of our, or should i say the banks polititians please give one example of a benefit to consumers
#noconsumerbenefit #whodoesbenefit?
Still asking, still no answers…….
Am I the only one that thinks this
Legislation is way to ” narrow”
Suicide and pre mature death are obvious reasons not to have funds “clawed back” What about a partnership agreement where the partnership folds in 12 months or a key man arrangement where the key person moves on after a year
There are probably dozens of these scenarios where the advisor has no control but will suffer financially after all the work and time spent on getting it right
You cannot have outside parties making all the rules they has to be some give and take between the insurers and the sdvisors when an unusual circumstance arises
Without flexibility in this it will become a bigger mess than it already is
Will Federal Treasury please explain in detail if an insurance policy premium loading of 50%,100% or 150%, applied at policy inception due to adverse or non-standard health evidence from the client and then removed from the policy 12 months later as a result of a positive re-assessment and the insurance premium reduced by the loading percentage will be subject to the proposed clawback provision and a reversal of the relevant proportion of commission paid to the adviser applied?
Would Federal Treasury please explain in detail if an additional insurance premium loading is applied to a policy at inception due to the policy holder participating in a recreational activity or pursuit that attracted a policy premium loading and the policy holder ceased participation in that activity 12 months later and the premium was reduced to standard rates, would the adviser be penalised by a reversal of the relevant portion of the initial commission received?
In these 2 examples, if the adviser has acted in the best interest of the client and placed the required level and types of insurance cover for their client and does not deliberately alter, replace or adjust the policy of insurance and the premium reduction is not a result of the advisers actions, it is unconscionable the adviser should be penalised in the form of commission clawback as a result of these types of alterations.
Would Federal Treasury please confirm whether either of these 2 examples would be recorded by the insurer as a partial lapse and if so,whether this type of data would be requested by ASIC in a review of lapse rates of insurance policies within the clawback time frame?
Would Federal Treasury please explain in detail exactly how each insurer will be liable for the mandatory assessment and recording of these specific examples on their admin systems and how the insurers will be able to isolate and identify this data from
deliberate policy replacement data within the proposed clawback time frame ?
Would Federal Treasury explain in detail that employed and salaried advisers within the banking system who receive performance related bonuses based on the level of risk commission placed be subject to the same clawback provisions as the independent advisers ?
Finally, would Federal Treasury provide comprehensive data obtained on the number of insurance policies that are currently subject to either self-harm or suicide related cancellations within the proposed clawback time frames relative to the total number of new insurance policies placed each year ?
I look forward to the detailed response…..although based on my normal life expectancy, I fear the next 35 years may not be an adequate enough time frame.
Well stated, Craig.
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