Clawback relief sought from Govt, ASIC

The Federal Government and the Australian Securities and Investments Commission (ASIC) are continuing to be pressed to allow life/risk advisers some accommodation around the clawback rules as clients continue to seek to cancel or defer premiums.

Association of Financial Advisers (AFA) general manager, policy and Ppofessionalism, Phil Anderson confirmed that his organisation was continuing to press the Government and ASIC to allow some accommodations in recognition of the extraordinary circumstances being experienced by life/risk advisers and their clients.

He noted that clients were seeking to cancel or reduce premiums in the face of financial hardship and through no fault of their financial advisers who were very often working hard to find them alternatives.

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Nonetheless if the policy was less than one year old, the adviser was faced with 100% clawback of their commission and 60% if it was cancelled in its second year.

Anderson said that, while the Government’s changes to an extension of the JobKeeper program was a good thing, it was undeniable that economic hardship would continue to be experienced.

He said that while there was no hard data available on the level of lapses leading to clawbacks, anecdotal evidence being received by the AFA suggested it was a real and growing problem as the impact of the COVID-19 pandemic continued to be felt.

“We’ve been notified a few hardship circumstances such as the woman whose partner was a self-employed travel agent and found themselves in a serious business decline and there have been others such as the man who had a perishables importation business,” Anderson said.

He acknowledged that while there were a range of options open to people in difficult financial circumstances including insurers granting premium holidays, the reality was that clients lost their insurance cover for the duration of the holiday.

At the same time, he said that where an adviser managed to secure a premium reduction, they were still exposed to the clawback.

“That is why we are talking with the Government and ASIC about ways around the situation,” he said.



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The clawback provisions introduced as part of LIF were manipulated for the purpose of reducing the issue of policy churning and imposing a penalty to an adviser for doing so.
The evidence of policy churning did not support the manifestly unfair clawback provisions that were imposed upon advisers who were to lose client business due to a range of factors completely outside their control and not of their own doing.
The intended purpose of significantly decreased commissions levels in combination with a much harsher clawback calculation were imposed to control insurance policy switching in the early years.
For the vast majority of quality advisers this was never an issue anyway, so instead of penalising and controlling those few that breached best practice it was a blanket penalty issued to all.
It simply should never have been done this way.
In addition, there was evidence that insurance companies were recording policy lapses against adviser's names that had been in place for 5,10, 15 years plus and then ASIC were being fed that data to collate to identify advisers losing business irrespective of the cause of policy cancellation such as no further need, business structure changes, inheritance reducing debt, relationship separation, etc etc.
Risk Insurance advisers have been persecuted and significantly compromised through the implementation of misguided and conflicted regulatory change often driven by ideology rather than reason.
These changes brought about by LIF are destroying the advised Life Insurance industry.
It is breaking down and falling apart.
The LIF is now rapidly proving to be a failure. Similar changes previously imposed in other countries have been reversed following realisation it was a mistake.
The constant comments from Kelly O'Dwyer, Sally Loane and many others at the time claiming that the LIF will enhance consumer outcomes were manifestly false and had no basis other than spin.
The level of current insurance premium cost is skyrocketing out of control, there is a mass exodus of experienced quality advisers, the claims statistics are increasing dramatically and the level of new insurance business is plummeting. This is a perfect storm of industry breakdown. It needs to be fixed.
This will result in a significantly greater percentage of the Australian public being under insured and dependent on an already struggling social security system when or if the unexpected and unforseen events occur.
The LIF including reduced commissions and harsh clawback provisions must be revisited.
The ideal outcome for the industry and the consumer is to have a healthy and profitable system that allows the maximum level of reach and access to quality, specialised risk advice by the consumer so they can be educated and make informed decisions in their best interest.
Anything else is compromised failure.

I agree with the comments above. The LIF should never have been allowed to happen by either the AFA or FPA who did not at the time fight the completely false information it was based upon by ASIC and the FSC.
And now ASIC are using COVID as an excuse not to review as promised the Life insurance industry in 2021.
Because if they did they would have to admit that they got it wrong.
They would have to admit that the FSC members have been increasing premiums on existing customers for the last 3 years and causing higher lapses and under-insurance.
They would have to admit that new business has fallen off a cliff and less customers are now covered.
They would have to admit that the LIF has failed customers on every level.

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