Asian News - Australia: Draft life rules propose commission clawback exceptions
Source: Asia Insurance Review | May 2016
The Australian government has proposed draft regulations that will enable its life insurance reform package to better align the interests of financial firms with those of consumers. Among several matters, the draft proposes several instances in which commissions can be retained by life insurance advisers, that is, where “clawbacks” would not apply.
The draft of the Corporations Amendment (Life Insurance Remuneration Arrangements) Regulation 2016 released in April, follows a series of reviews in recent years which identified the need to better align the interests of providers of financial advice in the life insurance sector with consumer outcomes.
The reform package introduced by the Life Act introduces caps under which commissions will be permitted to be paid, as well as arrangements to clawback commissions where policies lapse in the first two years. The reforms will commence on 1 July 2016.
The draft regulations also propose that clawback would not apply:
• where a policy is cancelled automatically due to the age of the insured, or in situations of self-harm such as suicide of the insured, or due to the insured being incorrectly described;
• where the policy cost is reduced as a result of a reduction to the health risk of the person insured. For example, a reduction in premium as the result of a decision by the insured to quit smoking would not trigger a clawback; and
• where reductions in the policy cost as a result of rebates or discounts intended to encourage the acquisition or continued holding of a life insurance product. For example, clawback would not be triggered where an insurer offered a loyalty-based premium reduction.