FSC announces new insurance framework
Financial Services Council (FSC) chief executive John Brogden has announced a new life insurance sales policy revolving around the clawback of commissions if a policy lapses in a certain period.
A tiered clawback structure means if a policy lapses for any reason in the first 12 months 100 per cent of the remuneration paid to the adviser is clawed back.
If the policy lapses in 12 to 24 months 75 per cent of remuneration is clawed back, and 50 per cent is clawed back if the policy lapses in 24 to 36 months.
The Association of Financial Advisers (AFA) and Financial Planning Association (FPA) have signed on to elements of the policy and the FSC has consulted with ASIC and APRA, Brogden said.
The FPA and AFA haven't indicated their full support yet but "we will move to implementation phase from next week to see if we can deliver policy that supports them as well," Brogden said.
The policy means that finding a definition for "churn" is no longer necessary, Brogden said. The best interests duty will overlay the policy, he added.
Update: AFA chief executive Richard Klipin described the policy as a "solid first step" in addressing the broader topic of creating a sustainable insurance industry.
Klipin applaud the way the FSC has engaged the market and their consultative approach but whilst he supported "a couple" of the outcomes said the AFA would like to "continue to discuss and debate this with the FSC, in particular the clawback provisions."
"The most sustainable way to align the interests of consumers, products providers, licensees and advisers is to encourage a hybrid model of compensation. We look forward to engaging further with the FSC as we move into the implementation phase," he said.
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