Changes Ahead as Life Insurance Commission Caps have Commenced

From 1 January 2018, upfront commissions for life insurance providers are capped at 80%. The life insurance industry initially escaped the future of financial advice (FoFA) reforms under which all other financial product providers were banned from receiving commissions. However, the Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017 (the Act) brings life insurance providers within the ambit of the FOFA reforms by restricting commission amounts life insurance providers are eligible to receive.


The Act, which was first introduced to Parliament at the end of 2015, aims to restrict the amount of commission financial advisers are able to receive when recommending life insurance products to clients, ultimately protecting the client’s best interests by ensuring the financial adviser does not simply recommend a product which provides them with the highest level of commission.

In June 2017, ASIC released the ASIC Corporations (Life Insurance Commissions) Instrument 2017/510 (Life Insurance Commissions Instrument) (the Instrument), continuing the allowance of commissions to be paid for the sale of life insurance inside set parameters. The Instrument introduced the following:

  1. Upfront commission cap of 80% which commenced on 1 January 2018 with a maximum trailing commission of 20% for all subsequent years. The upfront commission cap will be reduced to 70% from 1 January 2019 and finally reduced to 60% from 1 January 2020.
  2. 100% clawback of commission where the life insurance policy is cancelled, not continued or the policy cost is reduced in the first year and 60% clawback of commission in the second year.


The development of both the Act and the Instrument stemmed from the Life Insurance Framework (LIF) which commenced in June 2015. The LIF was development after the Australian Securities and Investments Commission (ASIC), as well as other regulatory bodies, conducted a review into the life insurance financial advice sector and found instances of advice being provided which deed not meet regulatory or legal standards and included the payment of upfront commissions. The LIF created a plan for remuneration practices, transitional arrangements, codes of conduct, financial adviser monitoring as well as enforcement.

Other requirements which stemmed from the LIF include:

  • compulsory educational requirements for financial advisers (both new and existing)
  • supervisory requirements for new financial advisers
  • a code of ethics for the life insurance industry
  • an exam that will be benchmarked across the financial adviser industry; and
  • ongoing training requirements.


ASIC will conduct a review of the life insurance industry in 2021 to assess the impact of these reforms.

For further information on the changes, please contact Sophie Grace.

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