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Govt releases final LIF, reduces clawback period

** Updated** The Government has released the much-anticipated final life insurance industry package, reducing the three-year clawback policy, but making no changes to commission rates.

In a government release on Friday, Assistant Treasurer Kelly O'Dwyer said all reforms would apply both to personal and general advice.

As hoped for by the advice community, the government made an adjustment to the onerous three-year clawback policy, reducing it to two years.

In announcing the final details of the Life Insurance Framework, Ms O'Dwyer said, "The Government has responded to industry concerns about ongoing business viability by moving from a three to a two-year clawback period. However, through these reforms we are ensuring that there are strong incentives to prevent replacement of policies where there is no consumer benefit."

The revised reform package stated that if a policy were to lapse in the first year, 100 per cent of the commission on the first year's premium would be clawed back, while should a policy lapse within the second year, 60 per cent of the commission on the first year's premium will be clawed back.

Commission rates, however, have remained unchanged and will be transitioned to a 60/20 hybrid model by 1 July 2018.
The premium on which commission caps are calculated can include the base premium, frequency loading and the policy fee, but cannot include stamp duty or GST.

Ms O'Dwyer also said she intends to strengthen remuneration disclosure as part of a broader review by ASIC of life insurance statements of advice, including "prominent upfront statements about commissions".


"The ASIC review of Statements of Advice will commence in the second half of 2016, with a view to making disclosure simpler and more effective for consumers as well as assisting advisers to make better use of these documents," she said.

Ms O'Dwyer added that the corporate regulator will undertake a review of the reforms in 2018, and if the review does not identify "significant improvement", the government will move to mandate level commissions as recommended by the Murray Inquiry.

"We will ensure that the industry develops appropriate lapse reporting data to provide clear evidence for this review and that ASIC works with industry to ensure strong integrity around the data," Ms O'Dwyer said.

"I will shortly write to ASIC requesting that they undertake this review."

According to the revised reform package, the industry will have responsibility for widening approved product lists through the development of a new industry standard which is to be led by the FSC.