Peter Vrljic
Remuneration for life risk insurance is exempt from the ban on conflicted remuneration – but not for much longer.
An established link between high levels of upfront commissions and poor consumer outcomes now means that modified conflicted remuneration rules will apply to all life risk insurance products issued or renewed after 1 July 2016.
Conflicted remuneration is any benefit (including a non-monetary benefit) given to a licensee (or its representative) who provides financial product advice to retail clients, which could reasonably be expected to influence the choice of financial products recommended or the financial product advice given.
After 1 July 2016 a life insurance benefit will be exempt from the conflicted remuneration ban if:
- it is a level commission, meaning that the benefit is the same for the year in which the product or products are issued as it is for each year in which the product or products are renewed; or
- it complies with the benefit ratio requirements and clawback requirements.
This change is unusual in that ASIC will set the ratio and clawback requirements. ASIC proposes to limit upfront commissions to 60% of the premium in the first year of the policy by 1 July 2018 (with a transition period of two years) and to cap ongoing commissions at 20% of the premium from 1 July 2016.
ASIC also proposes the following clawback requirements:
This means that life risk providers need to restructure non-compliant benefit arrangements to continue receiving commissions. This should be relatively easy for benefits linked to a specific life risk insurance product, but may be more difficult for volume based benefits that are not linked to specific life risk insurance products. To further complicate the issue, conflicted remuneration has never applied to agents of product issuers before, but now will, and there is limited ASIC guidance in this context.
If you have questions or need help with restructuring your benefit arrangements, or you need assistance in analysing the new proposed amendments, we’re more than happy to assist.
By Peter Vrljic, The Fold