Following the announcement of the draft legislative amendments and explanatory material containing amendments to the Corporations Act 2001 (Bill) by the Government on 3 December 2015, ASIC released Consultation Paper 245 (Consultation Paper) to seek feedback on proposals to implement reforms to the regulation of the life insurance industry.
The two main parts of the life insurance reforms introduced by the Bill are the new commission structure and the extended clawback period. If the Bill is passed, life insurance advice would no longer be exempted from the conflicted remuneration provisions of the Future of Financial Advice (FOFA) provisions. This means that any benefits paid to advisers will need to meet ASIC’s requirements as set out in a legislative instrument that the Bill has asked ASIC to make.
The new proposed hybrid commission structure involves caps on payments to insurance brokers being:
- A maximum of 60% upfront commission and 20% ongoing commission; and
- A two-year clawback arrangements where 100% of the upfront commission needs to be repaid if the policy lapses in the first year, and 60% if the policy lapses in the second year.
The Consultation Paper outlines the regulatory approach ASIC intends to take to implement the Bill and seeks feedback from those in the financial services industry who are affected by the Bill.
In addition to confirming the Government’s proposal for imposing a cap on hybrid commission arrangements and the two-year clawback arrangements, ASIC gives details on how it would use its data collection power under s912C of the Corporations Act to require information from life insurers for the purpose of ‘monitor the impact of the reforms’.
ASIC proposes to request data from insurers on:
- quantity of life insurance policies including how many policies are in force, the details of the policies in force, and how many policies have been exited and the reasons for the exit.
- remuneration date including historical data commissions (where relevant), the type of remuneration model adopted, and the level of upfront and ongoing commissions being paid.
- lapse rates and clawback amounts including data on lapse rates, the reasons for policies being exited, and the amount that was clawed back for every policy that lapsed.
- advice provision to customers including such policies sold with personal advice, general advice, and no advice.
According to the Consultation Paper, life insurers will be required to report the above information to ASIC twice a year starting from 1 July 2016.
ASIC will use the collected information in its review of the effectiveness of the reform package in 2018, and will publish these information periodically along with the results of its review to provide information to the industry as a whole on the progress of the reforms.
ASIC is seeking feedback on its consultation paper by 29 January 2016, and plans to make a determination in April 2016 to allow the reforms to take place on 1 July 2016. If you would like to make a submission to ASIC, we can assist you to do so.
Melody assists in preparing, reviewing and negotiating legal documentation for participants in the financial services industry. Melody also assists with developing, reviewing and amending compliance documentation. She also supports the Compliance Consultants with the preparation of AFSL and ACL applications, variations and compliance reviews. Melody provides ongoing legal support and also assists in implementing ongoing compliance support, updating procedural documentation and preparing compliance reporting for Compliance Committees and Boards of Directors.