O’Dwyer points to commissions and churn
The existence of 120 per cent upfront commissions was the reason for "a huge amount of churn" in the life/risk sector, according to Assistant Treasurer, Kelly O'Dwyer.
Explaining the reasoning behind the Government's exposure draft legislation relating to the Life Insurance Framework (LIF) in a radio interview, O'Dwyer referred directly to the impact of commissions and made clear that the majority had actually been banned.
"With the changes to financial advice, the majority of commissions have actually been banned which means that you can't get an upfront commission if you're providing that advice," she said. "The disclosure requirements for how payments are made have been strengthened and for those people selling life insurance we recently also made some changes to give effect to reform within that industry."
"In the life insurance industry you were able to get an upfront commission of 120 per cent of the premium — upfront. Which is why we were seeing a huge amount of churning within the industry," O'Dwyer said.
The minister said this meant that in the last 12 months [of a policy] people would be sold a new life insurance package "and that would be because sometimes their life insurance advisor would be getting a direct financial benefit from that".
"So we've made changes to that. We have announced those changes and we have said that that is simply not going to be on," O'Dwyer said.
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