LIF passes lower house
The Federal Government has announced the passage of the Life Insurance Framework (LIF) through Parliament, with the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 passing through the House of Representatives yesterday.
The legislation now faces the Senate and the views of the cross-benches.
Minister for Revenue and Financial Services, Kelly O'Dwyer, said: "The changes will significantly reduce the incentive for advisers to churn clients between life insurance products where there is no consumer benefit".
The framework contained with the bill includes:
- The rate of upfront commissions paid to advisers will be phased down to a maximum of 60 per cent from 120 per cent, with ongoing commissions capped at 20 per cent;
- A two-year upfront commission clawback period where 100 per cent of the upfront commission will be clawed back in the first year and 60 per cent of the upfront commission will be clawed back in the second year should a policy lapse; and
- Level commissions and fee-for-service remuneration remain and are uncapped.
While the bill was passed unopposed, Liberal Party member for Hughes, Craig Kelly, said he supported the bill with "great reluctance", warning the Government would need to be wary of unintended consequences of governments intervening in the market and setting prices.
"I cannot think of many other areas in the economy where the government is stepping in to reduce the payments or to set effectively a price cap on what financial advisers can be paid. I am at a loss as to why this is happening," he said.
"That current arrangement has been negotiated by those 28 large life insurance companies with the financial services. So they are now coming to the government, saying, ‘we think we're overpaying our sales staff. We want you to cut their commissions.' "
Kelly also said insurance companies could find other means of financial remuneration, adding that when governments intervened in matters, there would be many other ways around it.
"What is to stop one of those large insurance companies as an incentive giving a financial adviser a free trip to a conference in the Maldives?" he asked.
The reforms would begin on 1 January, 2018, and would apply to all life insurance advisers and would capture all life insurance sales channels in the future, including non-advised channels.
AUTHOR
Malavika Santhebennur
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