The government agrees more can be done to better align the interests of financial firms and consumers on risk insurance but will take a "different approach" from that recommended in the Financial System Inquiry.
In its official response to the FSI – which called for level commissions in order to better align the interests of financial firms and consumers – the government has decided to go with the proposed reforms announced by then Assistant Treasurer Josh Frydenberg.
"The government agrees more can be done to better align the interests of financial firms and consumers. However, we intend to take a different approach to that recommended by the inquiry for retail life insurance," the response said.
"We support the retail life insurance industry's proposed reforms as announced by the then assistant treasurer on 25 June 2015. The government will consider the extent to which legislation and/or action by ASIC may be necessary to implement the industry agreement."
The government also said it will conduct a review in 2018 to determine whether the industry arrangements have better aligned the interests of firms and consumers.
"If the review suggests further reform, consideration would be given to the inquiry's recommendation for a level commission structure or further extending the existing Future of Financial Advice provisions on conflicted remuneration to life insurance advice," the response said.
"The government will also develop legislation to allow ASIC to ban individuals from management within financial firms from operating in the industry," the response said.
The Turnbull government has agreed with David Murray's recommendation to introduce a mechanism to facilitate the rationalisation of legacy products in the life insurance sector.
"It is important that consumers should not be worse off due to any transition to a newer product," the response said.
"Under the existing framework there are possible tax implications of facilitating the transition away from legacy products, which will be explored in the context of the government's taxation white paper process."
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