Updating the fallout from its Financial Services Royal Commission, The Australian Government is contemplating the implementation of a flat life insurance commission structure in future, pending the outcome of a regulatory review of Australia’s Life Insurance Framework reforms, due in 2021.
The Government’s position was outlined as part of its full response to the recommendations stemming from the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Of the 76 recommendations made in the Royal Commission’s final report, ten related to financial advice (see: Royal Commission Financial Advice Recommendations).
Recommendation 2.5 focused on the future of life insurance commissions, where the recommendation states:
When [regulator] ASIC conducts its review of conflicted remuneration relating to life risk insurance products … 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.
The Government’s response notes existing reforms in relation to life insurance remuneration, ie Australia’s Life Insurance Framework reforms, and states that as part of these reforms, it had already 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 ASIC review does not identify significant improvement in the quality of advice, the Government stated it would move to mandate level commissions
The Government then makes its reference to flat commissions, noting that, if the ASIC review does not identify significant improvement in the quality of advice, the Government stated it would move to mandate level commissions.
In its response, the Government added that it supports ASIC conducting this 2021 review, while also taking into account the factors identified by the Royal Commission when undertaking it.
Click here to access the Government’s full response to the Banking Royal Commission’s 76 recommendations, which include the ten recommendations relating specifically to financial advice.