ASIC has released the regulatory instrument which will set the commission caps and claw-back arrangements under the Life Insurance Framework (LIF) reforms.
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.
LIF does absolutely nothing to improve the quality of advice a client receives. Absolutely nothing. This is why we have Best Interest Duties.
The outcomes of the LIF are that advice businesses will be paid less to carry more business risk in an increasingly onerous regulatory environment. The reality is that it is now (even) harder for an adviser to be able to ‘afford’ to give a ‘low value’ client advice. How obscene is that…. I’ve worked it out in my business and their are a large number of clients that simply cannot be assisted because of the loopholes we need to jump through in preparing/providing advice, the reducing commissions and the plethora of costs we carry, from AFSL fees through to software through to staffing to ensure service levels are met. Perhaps we could simply write Level premiums inappropriately? Perhaps we can massively over insure our clients? Perhaps we can direct them to the more expensive insurers for the same cover? All very bad outcomes for the client. It won’t be happening in my business, but I have no doubt that it will be happening.
Clawbacks are an absolute joke, let alone a 2 year period! Should we have the right to ask for Deputy Chair Peter Kell’s salary back in 18 months time because I’ve changed my mind? Bare in mind clients change products only when they cancel due to life circumstances (out of an advisers control and unfair on the adviser to take back commission) or the adviser recommends they switch products because it is in their best interests…. Something an adviser is also bound to by ASIC.
Will we see any change in premiums to the clients benefit? You can bet your bottom dollar that we will not. The only winners here are the insurers. Clients and advisers lose.
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