ASIC has made ASIC Corporations (Life Insurance Commissions) Instrument 2017/510 (Life Insurance Commissions Instrument), as part of the life insurance reform package which was announced by the Government on 6 November 2015.

The Life Insurance Commissions Instrument gives effect to the Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017, which allows commissions to be paid for the sale of life insurance. The Life Insurance Commissions Instrument sets limits on the commissions through a commission cap, and requires amounts to be repaid if the policy is cancelled within the first two years of the policy (clawback).

Setting commission caps and clawback amounts is intended to reduce the incentives for advisers to provide inappropriate advice to clients.

ASIC Deputy Chairman Peter Kell said, 'The commission caps and clawback requirements are important steps in improving the quality of advice.'

'The commission caps and clawback amounts commence on 1 January 2018. 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,' Mr Kell said.

'ASIC is currently using data from insurers to undertake targeted surveillances to seek out any advisers engaging in this misconduct.'

ASIC consulted with industry on its proposals to set the commission caps and clawback amounts in December 2015 (refer: 15-384MR).

ASIC will conduct a post-implementation review in 2021 to assess the impact of the reforms.

ASIC today released Report 527 Response to submissions on CP 245 Retail life insurance advice reforms, a report summarising the key feedback ASIC received in response to Consultation Paper 245 Retail life insurance advice reforms and our response to that feedback.

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• ASIC Corporations (Life Insurance Commissions) Instrument 2017/510
• Report 527
• Consultation Paper 245 and submissions

Background

On 6 November 2015, the Government announced a reform package for the life insurance advice industry, intended to better align the interests of advisers and consumers.

The Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017 (Life Insurance Remuneration Act) was passed by Parliament on 9 February 2017, and amends the Corporations Act 2001 to remove the exemption from the ban on conflicted remuneration for commissions paid in relation to certain life insurance products.

The Life Insurance Remuneration Act also enables ASIC to allow commissions to be paid if requirements are met relating to commission caps and clawback. The supporting Corporations Amendment (Life Insurance Remuneration Arrangements) Regulations 2017 were made on 9 March 2017. The Regulations prescribe circumstances where commissions are (or are not) considered conflicted remuneration, as well as prescribing circumstances where clawback does not apply. The Regulations extend the scope of the Life Insurance Remuneration Act to apply to direct sales and marketing of life insurance.

The Life Insurance Commissions Instrument:

• sets 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 (i.e. the policy is cancelled or not continued, or the policy cost is reduced) 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.

On 15 December 2015, ASIC released Consultation Paper 245 Retail life insurance advice reforms (CP 245), seeking feedback on proposals to implement reforms on the remuneration arrangements of the life insurance advice industry. The consultation paper sought feedback on the commission caps and clawback amounts agreed by industry. CP 245 also sought feedback on ASIC's proposals to request data from the life insurance industry for the purposes of monitoring and enforcement, as well as a review of the reforms.