Responding to the introduction of the Life Insurance Framework (LIF) legislation – which has now passed through the House of Representatives – Mr Chalmers told Parliament that while it will help improve customer outcomes, the bill is "not perfect".
"It is my view that although these changes are worthy of our support, we should consider them as a step in the right direction and not the arrival at a final destination," Mr Chalmers said.
"We strongly believe that the new framework must be monitored following implementation to establish whether it is working, or whether more needs to be done."
Mr Chalmers said Labor's "priority" is consumer protection and pointed out that the bill could "do better in this regard".
"One concern is with the clawback provisions in the final package. The clawback provisions are limited to the first two years of a life insurance policy," he said.
"We would not want to see financial advisers pressure customers to unnecessarily change their life insurance policy after two years, as a result of these changes."
ASIC's review of the effects the legislation has on the industry will also be integral to determining the future of the sector, he continued.
"If further evidence emerges that advisers are doing the wrong thing by people – and we can't rule that out – then we need to be ready to consider and respond to that behaviour as well," he said.
Meanwhile, Liberal backbencher and federal member for the Queensland electorate of Forde, Bert van Manen, told Parliament he cannot support the bill in its present form due to the "significant damage" it will inflict on independent financial advisers.
"We risk losing our independent financial advisers as a result of this bill, exposing consumers to the risk of losing access to unbiased, broad-ranging market research, and they do not even know," he said. "The solution to this is not to reduce commission or increase clawback to align adviser behaviour but rather to focus on the true causes of poor advice.
"What is essential for good insurance advice is a move to an advisory and fiduciary culture which focuses on strategic life insurance advice on a basis that is as holistic as possible. Whilst this bill reduces the financial incentives it does not address the root causes of poor advice.
"These reforms cannot be rushed without understanding the significant collateral damage being done by insurance companies to IFAs. Consumers will, unfortunately, be the losers from these reforms if there is no obligation on insurers to deliver any benefit to the consumer," Mr van Manen said.
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