The Long Road to Life Insurance Reform

It’s been 10 months since the Australian Securities and Investments Commission (ASIC) released its scathing report on the life insurance advice sector, prompting widespread reaction from life insurers, dealer groups, associations and advisers. However, the industry is yet to come to a resolution on the key issues of remuneration, product design and quality of advice. In this article, we examine the steps that have led to the current round of debate and we also look ahead to where the industry may land on life insurance reform…

The road to reform

9 October 2014

The Australian Securities and Investments Commission (ASIC) releases Report 413, outlining the findings of its review of retail life insurance advice. The regulator calls on the life insurance industry to consider how remuneration and compliance practices could better support good quality outcomes for consumers.

The Association of Financial Advisers (AFA) and the Financial Services Council (FSC) announce they will jointly convene a working group to address retail life insurance product structures and distribution practices.

17 October 2014

John Trowbridge is announced as the Independent Chair of the Life Insurance and Advice Working Group (LIAWG). There are six other representatives on the LIAWG, three from each association.

The LIAWG releases its Terms of Reference, which state the Working Group will:

  • Provide a unified response to the identified issues
  • Address the three key issues arising from the report:

1. Remuneration structures

2. Product design issues

3. Quality of advice

  • Provide specific analysis on the options and recommendations for industry change, including transitional paths.

7 December 2014

The David Murray-led Financial System Inquiry (FSI) releases its Final Report. Recommendation 24 calls for upfront commissions for life insurance advice to be no greater than ongoing commissions. The Report states that the yet-to-be-released findings of the LIAWG should also be considered during the development and implementation phases of the recommendations.

17 December 2014

John Trowbridge releases an Interim Report on the life insurance sector. Originally thought to represent the views of the entire LIAWG, both the FSC and AFA issue statements that highlight the Interim Report (and subsequent Final Report) contains the “independent recommendations” of Mr Trowbridge.

The industry is invited to provide submissions on the proposals contained within the Interim Report.

9 February 2015

As submissions to the Interim Report are closed-off, Mr Trowbridge praises the industry for the scope and quality of its responses. Over 130 submissions are received. Mr Trowbridge commits to providing his final report by the end of March.

26 March 2015

The final Trowbridge Report is released, recommending a 20% level commission model with an accompanying Initial Advice Payment of $1,200, to be paid a maximum of once every five years. Other recommendations include:

  • A three-year transition program, with ASIC to review the measures again in 2020
  • The banning of other conflicted remuneration, such as volume-based payments
  • Extending licensee Approved Product Lists to include at least 50% of retail insurers
  • The development of a Life Insurance Code of Practice

5 April 2015

The Financial Planning Association (FPA) releases its response to the FSI recommendation to move to level commissions. The Association says a flat or level commission structure does not appropriately compensate advisers for the amount of work required to put insurance policies in place. The FPA calls for:

  • A ban on conflicted remuneration such as volume-based payments, so that life insurance products are consistent with other financial products under the Future of Financial Advice regime
  • The removal of heavily restricted APLs
  • Insurers to be required to pass on savings in the form of premium reductions and sustainable pricing
  • Greater support for advisers through remuneration models that are affordable, transparent and sustainable, and better product design
  • Stronger and smarter enforcement of poor life insurance advice practices by the regulators

10 April 2015

Assistant Treasurer, Josh Frydenberg, releases an opinion piece in which he outlines a clear message of support for the recommendations outlined in the Trowbridge Final Report. “The extent to which government intervention is required will depend ultimately on the industry’s own actions,” Mr Frydenberg said, before concluding, “It is up to the industry now to restore public confidence before time for industry leadership runs out.”

15 April 2015

Speaking at an FSC Breakfast, Mr Frydenberg tells the industry it has “weeks, not months” to address the Trowbridge Final Report recommendations.

21 April 2015

Having already voiced disagreement with the remuneration reform proposals contained in the Trowbridge report, the AFA’s Brad Fox issues a statement saying he does not believe the LIAWG delivered on its original Terms of Reference, labelling some of the recommendations in the Trowbridge Final Report “unworkable”.

22 April 2015

The FSC issues its submission to the FSI Final Report, including a copy of its initial response to the LIAWG. FSC CEO, Sally Loane, says the Council will prepare a proposal for the Assistant Treasurer, based on the recommendations put forward in Mr Trowbridge’s Final Report. She confirms the proposal will be the view of the FSC alone, and not of the LIAWG, which was disbanded after the Final Report was released.

4 May 2015

The FPA announces its position on life insurance, releasing a Life Insurance Blueprint to its members for consultation. The Blueprint contains ten recommendations that address ASIC’s concerns about life insurance advice (as expressed in Report 413).

Along with the recommendations set out in the Association’s response to the FSI Report, the FPA Blueprint recommends:

  • The retention of upfront commissions, at a rate of four times that of the ongoing commission rate
  • A two year responsibility (or clawback) period for all policies
  • A three year transition period
  • All life insurance companies be required to report advisers who are “churning” to the regulator
  • A specialist accreditation for risk advisers

(The Blueprint later receives support from 70% of FPA members.)

3 June 2015

ASIC Deputy Chairman, Peter Kell, tells the Senate Economics Committee that while the regulator had yet to see a final, consensus life insurance reform program, the industry was “…getting quite close to a landing as to the elements of that reform”.

25 June 2015

The Assistant Treasurer announces he has received a Life Insurance Framework, presented by the AFA, FPA and FSC, on behalf of the retail life insurance industry.

The package proposed:

  • The abolition of the current, high upfront commission structure
  • That maximum total upfront commission should reduce by more than half the current industry maximum by July 2018
  • Measures to address incentives that may lead to poor quality advice
  • Measures to address conflicts of interest, including conflicted remuneration
  • Strengthened monitoring and enforcement
  • Increased transparency
  • Encouragement of industry innovation and efficiency

Where to from here?


Judging by the tone of the comments on riskinfo over the past six months, risk-focused advisers are deeply concerned about the direction in which the life insurance industry is moving.

This observation from regular commentor, Paul Herring, sums up the mood of many advisers:

“There’s simply no financial incentive to enter the industry and the incomes we once enjoyed will require three times the amount of work to get there. Eighty percent of that will be dealing with back-office matters including compliance. These activities earn us no income, but if we aren’t up to speed with them we’ll lose our licences and/or face prohibitive penalities. Who can earn a reasonable income when he see clients/prospective ones in just 20% of his time?” 

In a poll conducted by riskinfo immediately following the release of the LIF, just 12% of respondents said they supported the remuneration proposals. A further 37% said they did not support the LIF remuneration changes but felt they would still able to operate a successful business under the new framework.

The most recent poll on the LIF, which asked advisers to identify the most significant business change they would implement in response to the Framework, painted a grim picture, with more than one in three advisers saying they would leave the industry. Advisers also indicated they are looking for ways to drive operational efficiencies in their business, and to deliver more holistic, broader advice solutions. The results are similar to those uncovered by Zurich in its own recent survey on the topic, which found that nearly 40% of advisers were seeking efficiency drivers.

Of all LIF proposals, the clawback arrangement appears to have attracted the most criticism from advisers. Synchron Director, Don Trapnell, likened the clawback provisions to using a sledgehammer to crack a nut (click here).

Advisers are also expressing their concerns directly to their local MPs in a bid to garner support for an alternative framework. In a letter shared with riskinfo to his local member, NSW adviser Sam Perera warns that up to 60% of risk-focused advice businesses may close if the remuneration reforms proceed in their current form.


Despite having been party to the LIF delivered to Mr Frydenberg, the AFA has subsequently admitted it is still working to improve specific areas of the reform package. The Association singled out the clawback provisions for further improvement, saying it would “…continue to apply pressure for clawback to apply only with replacement product advice and not situations that sit outside the advisers’ control, like a client-directed lapse because of unaffordability.”

The AFA is also great steps to address serious concerns expressed by many of its members,  who feel their interests have not been appropriately represented. The Association hosted a webinar in early July to discuss all aspects of the proposed changes and provide context for the reforms. A further half-hour Q&A session was also added to the AFA’s National Roadshow program (held nationally through July) to allow advisers to speak directly to those involved in the negotiations.


The FPA has also defended its involvement in the development of the LIF, arguing the alternative was a Government-led response to the FSI Report recommendation of level commissions only.

In a statement released on 22 July, the FPA said the industry consultation process instigated by the Government was challenging and caused much debate and discussion.

‘The FPA took on board the feedback gained from members on the Life Insurance Blueprint and fought hard for an appropriate outcome for both financial planners and consumers,’ the statement read.

‘While the FPA was unable to secure every recommendation put forward in the Blueprint, we continue to fight for sensible interpretation of the outlined policy announced on 25 June 2015, particularly the interpretation of what consists a lapsed policy for the purpose of the clawback provisions.’

Life companies

At least three insurers have come out in support of the LIF. TAL, ANZ and Suncorp all issued statements following the LIF announcement, collectively describing the Framework as having achieved an “appropriate balance” between the interests of all stakeholders.

While other insurers have been quiet throughout the reform process, there is no doubt significant work taking place behind the scenes, as product teams race to implement changes to their remuneration processes to facilitate the expected move to more fee for service insurance advice.

BT Financial Group’s Protection Plans suite has offered an adviser service fee feature for some time. The feature allows advisers to dial-down commissions, substituting the commission with a flat fee or percentage-based administration fee. Most recently, licensee Findex has taken advantage of this feature to push its representatives towards fee for service risk advice.

In April 2015, AMP announced it would cap its upfront life insurance commission at 80%. The wealth manager also mandated the use of a hybrid commission model for its licensees and a requirement for other insurers to comply with the hybrid model in order to be considered on AMP licensee APLs.

For its part, Asteron Life released a modelling tool to help advisers assess the impact of implementing lower upfront commissions in their individual businesses.

Government response

Responding to the release of the LIF, the Assistant Treasurer said the Government would consider the proposals in the context of its response to the FSI. The Government has yet to provide a formal response to the FSI. Consultation on the FSI Report closed on 31 March 2015, with the Government expected to issue its formal FSI response shortly.

One possible future

If the LIF is accepted by the Government, the following timeline sets out the transition milestone dates:

1 January 2016

  • Commencement of three-year retention clawback period
  • Reduction of total upfront commission to 80% of the premium in the first year of the policy
  • Commencement of ongoing reporting by life insurance companies of policy replacement data to the Australian Securities and Investments Commission

1 July 2016

  • Ban on other volume-based payments implemented, with appropriate grandfathering arrangements
  • Deadline for Government consideration of measures to widen Approved Product Lists
  • Life Insurance Code of Conduct to be finalised

1 July 2017

  • Reduction of total upfront commission to 70% of the premium in the first year of the policy

1 July 2018

  • Reduction of total upfront commission to 60% of the premium in the first year of the policy

31 December 2018

  • Deadline for Government to conduct review of the effectiveness of the LIF measures

Other measures with no timeline

While no deadlines were applied to these initiatives, the LIF proposals also task ASIC with the job of reviewing Statements of Advice, with a view to making disclosure simpler and more effective, and Government to consider developing a mechanism to rationalise life insurance legacy products, consistent with recommendation 43 of the FSI.

As the reform agenda continues to twist and turn, riskinfo will keep readers up to date with all the latest news.


Emily Saint-Smith is riskinfo’s Senior Journalist.

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