The Government has released draft regulations that will support the Government’s life insurance reform package to better align the interests of financial firms with consumers.
Remuneration relating to life insurance advice provided outside of superannuation was excluded from the ban on conflicted remuneration (remuneration likely to influence advice) introduced under the Future of Financial Advice (FOFA) laws.
A series of reports, including a review the Australian Securities and Investments Commission (ASIC), the industry-commissioned Trowbridge Report and the Financial System Inquiry (FSI), identified the need to better align the interests of providers of financial advice in the life insurance sector with consumer outcomes. As part of its response to the FSI, the Government announced that it would support a reform package put forward by industry.
The reform package introduced by the Life Act removes the exemption from the ban on conflicted remuneration, and introduces caps under which commissions will be permitted to be paid, as well as arrangements to ‘clawback’ commissions where policies lapse in the first two years. The reforms will commence on 1 July 2016.
The Regulation supports the reform package introduced by the Life Act by:
- allowing the temporary inclusion of stamp duty relating to death benefits to be included in commission calculations while industry update its information technology systems;
- prescribing circumstances where ‘clawback’ does not apply, such as in situations where a policy is cancelled automatically due to the age of the insured or where a premium rebate is offered to encourage customers to take up a policy; and
- ensuring that existing life insurance remuneration arrangements are grandfathered in a manner broadly consistent with FOFA by ensuring that remuneration arrangements not effectively grandfathered by the Life Act
(i.e. employee-employer remuneration arrangements) are explicitly grandfathered in the Regulation. Grandfathering means that the existing rules continue to apply to existing arrangements, while new rules apply to new arrangements.
Closing date for submissions: Thursday, 28 April 2016
