In its response to the Financial System Inquiry (FSI), the Government has rejected recommendations to ban upfront commissions on life insurance.
While some industry bodies were pleased the Government would be continuing life insurance reform, Industry Super Australia (ISA) were disappointed it was not going further and extending the future of financial advice (FOFA) ban to life insurance commissions.
Financial Services Council (FSC) chief executive, Sally Loane, said “we are pleased the Government has continued to lead reform of the advised life insurance sector and will progress the industry reform proposal released on 25 June”.
“When implemented, this package of reforms, which includes reduced commissions, extension of claw-backs to three years, and the introduction of an industry-wide reporting regime, will substantially benefit consumers,” she said.
However, when the reforms are reviewed in 2018 and if they are not found to better align the interests of firms and consumers, consideration will be given to the Inquiry’s recommendation for a level commission structure, or further extending the existing FOFA provisions on conflicted remuneration to life insurance advice.
“We also welcome the Government’s commitment to introduce a rationalisation mechanism for legacy life insurance products. It is a timely reform that will help reduce barriers for consumers accessing contemporary products and will reduce industry costs,” Loane said.
The Association of Financial Advisers (AFA), chief executive, Brad Fox said it would continue discussions with the Government on the detail and implementation of the Life Insurance Framework (LIF).
“Ensuring fairness and balance is important for all parties — consumers, insurers, and financial advisers — especially those who own and advise in small businesses,” Fox said.
