The Financial Planning Association of Australia The Financial Planning Association of Australia

Consensus reached on life insurance industry reforms


According to the Financial Planning Association of Australia (FPA), today’s joint announcement with the Association of Financial Advisers (AFA) and the Financial Services Council (FSC) is a sensible landing spot for the retail life insurance industry.

The FPA is pleased that this industry response has been welcomed by Government, and will be taken into account in any response to the Financial System Inquiry (FSI). The alternative of level commissions only, as outlined in the FSI Inquiry, would not have provided comprehensive consumer protection, access to affordable advice and industry sustainability. These three elements have been core considerations in the response from industry.

Mark Rantall, CEO of the FPA, said the package of reforms provides a sustainable solution for the industry and represents a joint position held by the FPA, the AFA and the FSC.

Key features of the package include:

  • A transition from high upfront commissions to either a hybrid commission, level commission or Fee for Service model.
  • Starting from 1 January 2016, upfront commissions will be capped at 80% and then reduced to 70% from 1 July 2017, before settling at 60% from 1 July 2018.
  • Where a hybrid model is adopted, ongoing commissions will be capped at 20% from 1 January 2016.
  • New retention clawback provisions will commence from 1 January 2016, starting with 100% of the commission in year one, 60% in year two and 30% in year three of the policy.
  • A ban on other volume-based payments from 1 July 2016, with appropriate grandfathering arrangements, consistent with the Future of Financial Advice laws.
  • Government to consider measures to widen Approved Product Lists (APL) by 1 July 2016.
  • Ongoing reporting by life insurance companies of policy replacement data to ASIC, commencing 1 January 2016.

Read the full reform package here

“The FPA, AFA and FSC response to the life insurance industry provides a clear signal that the industry must transform,” Mr Rantall said.

“The ASIC report into life insurance advice, along with the Financial System Inquiry (FSI) and the Trowbridge report have suggested significant amendments and raised various reactions to date. We responded to the FSI report and, through consultation with our members, developed our Life Insurance Blueprint, which outlined a competitive and valuable solution.

“The consultation process has been challenging and it has caused much debate and discussion within the industry. During this consultation period, we gained feedback from FPA members before fighting hard for an appropriate outcome for both financial planners and consumers. We used the FPA Life Insurance Blueprint in discussions with industry and while we were unable to secure every recommendation we put forward in it, we believe that a sensible and practical outcome has been reached.”

Mr Rantall highlighted the removal of high upfront commissions and conflicted remuneration as some of the key changes it supported.

“The FPA supports the need for a model that allows Australians access to professional advice that is affordable, and provides the protection deserved by all. We therefore support the removal of high, unsustainable upfront commissions that can distort the advice process and we believe the proposed remuneration model and transition will allow financial planners to transition appropriately.

“Further, we strongly support the recommendation to widen Approved Product Lists, which will support financial planners in their obligations to act in their client’s best interest when recommending appropriate insurance policies for clients,” Mr Rantall said.

The FPA believes that strengthening the enforcement of bad financial advice practices, by including a process for reporting advisers who are ‘churning’ to ASIC, and the removal of other conflicted payments including volume rebates and payments is necessary to the overall package of initiatives.

“We all know that as a nation we are grossly under-insured. Australians need to have appropriate advice on their insurance needs and the FPA supports reform that will improve access to insurance advice.

“The reforms outlined today will benefit financial planners and consumers, and ultimately build a sustainable and affordable life insurance industry,” Mr Rantall said.