In its submission to Treasury regarding the Revised Life Insurance Remuneration Reform Regulations introduced on 19 October, the AFA said it wants to ensure clawback is not required where the policy is cancelled due to a technicality within the insurer’s operational requirements, the terms of the policy changing or subsequent changes in the insured’s circumstances.
“Fine tuning the clawback trigger exemptions is sensible to not unfairly claw back remuneration from financial advisers within the first two years of policy inception in circumstances where they are not the cause of policies ending or premiums reducing,” the submission said.
“This will help raise trust and confidence in insurers’ treatment amongst small business advisers.”
In providing examples of situations to support its case, the AFA said clawback should not apply where a policyholder obtains a maternity leave ‘premium holiday’, noting that it technically results in a premium reduction and would trigger clawback.
“The circumstances that give rise to premium holidays are often unforeseen changes to the policyholder’s circumstances that the adviser has no control over,” the submission said.
The AFA also said clawback should not be triggered where a policyholder receives an inheritance or windfall that allows them to reduce their debts, hence their insurance needs consequently reduce.
“In such a situation, the work and effort expended by the adviser to set up the insured’s policies should not be unfairly penalised through a remuneration clawback where they had no ability to foresee such a change in circumstances in the short term.”
As usual the out of touch AFA trying to “clawback” some credibility after selling out risk advisers. It could be as simple as if the adviser replaces the business then there is a clawback if not then there is not. Or actually that the current system worked as per actual proven facts and data.
“In such a situation, the work and effort expended by the adviser to set up the insured’s policies should not be unfairly penalised through a remuneration clawback where they had no ability to foresee such a change in circumstances in the short term.”
This comment could apply to every clawback and as such is a nonsense. The only workable system is a 12 month clawback as it exists today.
There are disconnects all over the place, which is why this has been difficult. Advisers getting paid any commission upfront (even ‘hybrid’) means the life company needs the policyholder to stay on the book to make a fair return. If we start talking about aligning interests between life companies and advisers the apparent conclusion is level commission. That then means advisers don’t get paid when most of the work is done. To solve that, we have upfront commissions. The clawback is a way to try to re-align interests again. Not perfect. But probably better than other options.
The entire remuneration model should be relooked at, for example the income that the adviser earns should never be allowed to be taken back from him or her. If the policy is cancelled then it should be up to the insurer to get what ever costs have been paid out directly from the client. The adviser has done the work. Please tell me which other industry takes away the remuneration of their employees – NONE. Even if the remuneration was reduced and the advisers were paid on an invoice basis for the work done per insurance company. This modern day slavery should be halted by the human rights committee at the UN as no one knows how adviser are remunerated and that they can have their remuneration taken away from them. The system is immoral and should be discontinued. Shame on you insurance industry.