Australia’s Federal Opposition has confirmed it would ban all risk commissions if ASIC’s 2021 review of the impact of the Life Insurance Framework reforms offers no clear justification for retaining them.
Labor’s policy on the future of risk commissions is contained in its formal response to the Banking Royal Commission’s recommendations, which was released at the end of last week (click here for Labor’s full response).
The present Opposition’s stance on the future of risk commissions differs from that of the Government, where the Coalition has stated it will mandate a level commission regime if ASIC’s 2021 review does not identify significant improvement in the quality of advice following the three-year Life Insurance Framework remuneration transition period.
A joint release by Opposition Leader, Bill Shorten MP, Shadow Treasurer, Chris Bowen MP and Shadow Minister For Financial Services, Clare O’Neil MP, coinciding with the release of Labor’s detailed Royal Commission response document, states in part:
“Unlike the Liberals, we will fully implement the Royal Commission’s recommendation to end the hawking of insurance products, to ensure there are consequences when the big banks breach industry codes and to ban life insurance commissions if ASIC finds there is no clear justification for retaining them.”
If there is no clear justification for retaining life insurance commissions, Labor will ban them
The full wording of Labor’s position on the future of risk commissions, detailed in its response to the Banking Royal Commission’s recommendation 2.5 is:
“Labor will ensure that ASIC conducts a review of life insurance commissions. This review will also consider other exemptions to the ban on conflicted remuneration identified in recommendation 2.6 [general insurance, consumer credit insurance].
Unlike the Government, Labor will fully implement this recommendation by ensuring that ASIC considers whether there is any clear justification for retaining life insurance commissions. If there is no clear justification for retaining life insurance commissions, Labor will ban them.”
This approach compares with that of the Coalition, whose exact response to recommendation 2.5 reads:
“In 2017, the Government enacted reforms to life insurance remuneration that capped the commissions a financial adviser would receive for providing advice in relation to the purchase of a life insurance product. As part of these reforms, the Government announced that ASIC would conduct a review in 2021 to consider whether the reforms have better aligned the interests of advisers and consumers. If the review does not identify significant improvement in the quality of advice, the Government stated it would move to mandate level commissions, as was recommended by the Financial System Inquiry.
The Government supports ASIC conducting this review and considering the factors identified by the Royal Commission when undertaking this review.”
As a reminder for advisers, the Banking Royal Commission’s recommendation 2.5 reads:
“When ASIC conducts its review of conflicted remuneration relating to life risk insurance products and the operation of the ASIC Corporations (Life Insurance Commissions) Instrument 2017/510, ASIC should consider further reducing the cap on commissions in respect of life risk insurance products. Unless there is a clear justification for retaining those commissions, the cap should ultimately be reduced to zero.”
Labor’s confirmation of its position on the future of risk commissions follows its earlier pronouncement that it would bring forward the timing of the Royal Commission’s recommendation 2.4 to repeal the grandfathering provisions for conflicted investment and superannuation remuneration to 1 January 2020. This is one year earlier than that outlined in the Government’s response, which targets an effective date of 1 January 2021 for the repeal of this FoFA carve-out.