{"id":30024,"date":"2015-06-25T07:47:17","date_gmt":"2015-06-24T21:47:17","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=30024"},"modified":"2025-06-18T12:01:20","modified_gmt":"2025-06-18T01:01:20","slug":"new-life-insurance-framework-announced","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2015\/06\/25\/new-life-insurance-framework-announced\/","title":{"rendered":"New Life Insurance Framework Announced"},"content":{"rendered":"

A maximum 60 per cent hybrid commission structure headlines a package of life insurance remuneration and other reform proposals announced by Assistant Treasurer, Josh Frydenberg<\/strong>.<\/p>\n

<\/p>\n

The 14-point Life Insurance Framework released by Mr Frydenberg follows a controversial and sometimes emotional debate surrounding the release of ASIC’s Review of Retail Life Insurance Advice (ASIC Report 413) in October 2014, and the subsequent recommendations handed down by John Trowbridge earlier this year, in response to Report 413.<\/p>\n

The Framework proposes a 14-point plan that covers :<\/p>\n

\"Assistant<\/a>
Assistant Treasurer, Josh Frydenberg<\/figcaption><\/figure>\n
    \n
  • Adviser and licensee remuneration<\/li>\n
  • Transitional arrangements<\/li>\n
  • Quality of advice and insurer practices<\/li>\n
  • Better enforcement and monitoring<\/li>\n
  • Industry efficiency<\/li>\n<\/ul>\n

    Adviser and licensee remuneration<\/strong><\/p>\n

    Five points in the proposed framework address the most controversial issue in the debate, namely adviser and licensee remuneration. These proposals appear to represent a compromise solution that is positioned between current upfront commission arrangements and the flat commission structure proposed within the Trowbridge recommendations:<\/p>\n

      \n
    • Maximum total upfront commission of 60 per cent of the premium in the first year of the policy, from 1 July 2018<\/li>\n
    • Maximum ongoing commission of 20 per cent of the premium in all subsequent years from 1 January 2016<\/li>\n
    • Three year retention (\u2018clawback\u2019) period, to commence from 1 January 2016 to apply as follows:\n
        \n
      • in the first year of the policy, to 100 per cent of the commission on the first year\u2019s premium<\/li>\n
      • in the second year of the policy, to 60 per cent of the commission on the first year\u2019s premium<\/li>\n
      • in the third year of the policy, to 30 per cent of the commission on the first year\u2019s premium<\/li>\n<\/ul>\n<\/li>\n
      • Ban on other volume-based payments from 1 July 2016, with appropriate grandfathering arrangements, consistent with the Future of Financial Advice laws<\/li>\n
      • Life insurance companies to offer fee-for-service insurance products to support advisers who wish to operate on a fee-for-service basis<\/li>\n<\/ul>\n

        Transitional arrangements<\/strong><\/p>\n

        A three-year transition structure has been proposed, which would culminate in the 60 per cent maximum upfront commission structure being implemented from 1 July 2018:<\/p>\n

          \n
        • Maximum total upfront commission of 80 per cent of the premium in the first year of the policy from 1 January 2016<\/li>\n
        • Maximum total upfront commission of 70 per cent of the premium in the first year of the policy from 1 July 2017<\/li>\n
        • Maximum total upfront commission of 60 per cent of the premium in the first year of the policy from 1 July 2018<\/li>\n<\/ul>\n

          Quality of advice and insurer practices<\/strong><\/p>\n

          These two points reflect previous recommendations supported by many parts of the industry, including the AFA and the FSC, and which were included in the Trowbridge recommendations:<\/p>\n

            \n
          • Government to consider measures to widen Approved Product Lists by 1 July 2016<\/li>\n<\/ul>\n
              \n
            • Life Insurance Code of Conduct to be developed by the FSC by 1 July 2016. Similar to existing codes for Banking and General Insurance, the Code would set out best practice standards for insurers, including in relation to underwriting and claims management.<\/li>\n<\/ul>\n

              Better enforcement and monitoring<\/strong><\/p>\n

                \n
              • Ongoing reporting by life insurance companies of policy replacement data to ASIC to commence 1 January 2016<\/li>\n<\/ul>\n
                  \n
                • Government to conduct a review of these measures by the end of 2018<\/li>\n<\/ul>\n

                  Industry efficiency<\/strong><\/p>\n

                    \n
                  • ASIC to review Statements of Advice, with a view to making disclosure simpler and more effective<\/li>\n
                  • Government to consider developing a mechanism to rationalise life insurance legacy products, consistent with recommendation 43 of the Financial System Inquiry<\/li>\n<\/ul>\n

                    AFA Response<\/strong><\/p>\n

                    The Association of Financial Advisers has delivered a detailed initial response to the proposed Life Insurance Framework, noting it is ‘generally’ supportive of the proposal endorsed by the Assistant Treasurer.<\/p>\n

                    the final position …represents a compromise<\/p><\/blockquote>\n

                    It says the Framework is the industry\u2019s response to ASIC Report 413 and that the final position “… represents a compromise that, whilst challenging, is at least workable for most advisers…”<\/p>\n

                    AFA CEO, Brad Fox<\/strong> said, \u201cIt is unfortunate that much of this debate has been about adviser remuneration, when the real issue and the thing that needed to be addressed was always the quality of advice and compliance.\u201d He added, “Our intention in this process was always to find a united industry solution.\u201d<\/p>\n

                    Mr Fox said the AFA wanted to move forward with a remuneration outcome based on an 80\/20 hybrid commission model, “…however it has been made clear to us that this is not something the community will now accept for the long term.\u201d<\/p>\n

                    The AFA notes it has worked in collaboration with the Financial Planning Association to reach a shared blueprint of recommendations that in themselves represented fundamental change on many levels.<\/p>\n

                    The AFA also highlighted five areas in which it said it was particularly pleased to have secured:<\/p>\n

                      \n
                    1. The three-year transition period<\/li>\n
                    2. Clawback arrangements that taper down appropriately<\/li>\n
                    3. Retention of greater payment in year one (when the costs of providing the advice are highest)<\/li>\n
                    4. Commitment from the insurers to improve efficiencies<\/li>\n
                    5. Government support for ASIC to address the cost of providing advice through more efficient and effective advice document requirements<\/li>\n<\/ol>\n

                      Mr Fox concluded, \u201cHigh upfront commissions of over 100% in the first year, together with insurer conduct that encourages the switching of clients\u2019 policies, have created conflicts of interest. In the simplest terms, the public, consumer groups and politicians have made it clear that this must stop. These measures ensure that it will.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

                      A maximum 60 per cent hybrid commission structure headlines a package of life insurance remuneration and other reform proposals announced by Assistant Treasurer, Josh Frydenberg.<\/p>\n","protected":false},"author":3,"featured_media":30104,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[282,259,8,270],"tags":[4247],"class_list":["post-30024","post","type-post","status-publish","format-standard","has-post-thumbnail","category-associations","category-breaking","category-compliance-regulation","category-remuneration","tag-feature","headers-new"],"_links":{"self":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/30024","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/comments?post=30024"}],"version-history":[{"count":0,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/30024\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media\/30104"}],"wp:attachment":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media?parent=30024"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/categories?post=30024"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/tags?post=30024"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}