Asian News - Australia: Commission guidelines for retail life insurance
Source: Asia Insurance Review | Dec 2015
The Australian government said it will cut first-year commissions on new life insurance policies from 120% to 60%, but reduce a “clawback” period on new policies from three years to two.
The changes will take place over the next three years with upfront commissions capped at 80% from 1 July 2016; 70% from 1 July 2017 and 60% from 1 July 2018, with a maximum trailing commission thereafter of 20%, twice the traditional 10% rate.
The clawback for commissions works as follows: In the first year of the policy, a clawback of 100% of the commission on the first year’s premium; and in the second year of the policy, 60% of the commission on the first year’s premium.
The moves aim to reform the retail life insurance market. Commission-driven churn is seen as one of the major problems in the industry. The changes will apply across all channels, including personal advice, general advice and direct life insurance. The reforms follow a report by the Australian Securities & Investments Commission in October 2014 which found unacceptable levels of poor quality advice, and a strong correlation between high upfront commissions and poor consumer outcomes.
Draft legislation to implement the commission ceilings and clawback will be released for consultation by the end of the year.
Assistant Treasurer Ms Kelly O’Dwyer said that the government would review the reforms in 2018 and “if the 2018 review does not identify significant improvement, the government will move to mandate level commissions”.