The Australian Securities and Investments Commission (ASIC) has warned advisers against seeking to switch clients into new life/risk policies to beat the commission caps and clawbacks applying as a result of the Life Insurance Framework (LIF).
ASIC deputy chairman, Peter Kell issued the warning stating that ASIC would be undertaking surveillances on the issue.
The commissions caps and clawback applying to the LIF will come into effect from 1 January, next year.
ASIC outlined the new arrangement today, stating it had made ASIC Corporations (Life Insurance Commissions) Instrument 2017/510 (Life Insurance Commissions Instrument). The instrument:
- Sets commission caps at 60 per cent of the premium in the first year of the policy from 1 January 2020, with a maximum trailing commission of 20 per cent of the premium in all subsequent years;
- Provides for a transition period, with the commission cap set at 80 per cent from 1 January 2018 and 70 per cent from 1 January 2019;
- Requires clawback of 100 per cent 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 per cent clawback in the event of a lapse in the second year; and
- 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.
The ASIC announcement said setting commission caps and clawback amounts was intended to reduce the incentives for advisers to provide inappropriate advice to clients.
Commenting on making the instrument, ASIC deputy chairman, Peter Kell described the commission caps and clawback requirements as 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,” he said.
“ASIC is currently using data from insurers to undertake targeted surveillances to seek out any advisers engaging in this misconduct.”
