The Financial Services Council (FSC) will meet with members of Australia’s financial planning sector this week to discuss its new life insurance framework after failing to secure full support from the country’s two peak advice bodies.
FSC chief executive John Brogden said he would meet with representatives from the Association of Financial Advisers (AFA) and FPA over the policy.
On Friday, the FSC announced broad sweeping changes for Australia’s life insurance sector in a bid to eliminate churning of products and reduce the country’s underinsurance problem.
Brogden said under the FSC’s new framework, where an upfront commission is taken there will now be a clawback process.
“This is quite a radical change of the remuneration process. If the policy lapses in the first 12 months, 100 per cent of the commission will be paid back to the insurance company by the adviser,” he said.
“Where there is a lapse in the second year, 75 per cent of the commission will be paid back, where there is a lapse in the third year 50 per cent will be paid back.”
He said it is the FSC’s intention to commence the changes on 1 July 2013, in line with a number of regulatory changes facing the financial services sector.
However, despite all life insurance members of the FSC backing the new framework, Australia’s financial advisory sector remains lukewarm on the plan.
“The critical parties who we’ve consulted with are the AFA [Association of Financial Advisers], FPA, and we’ve also consulted with ASIC and APRA [Australian Prudential Regulation Authority],” he said.
“The FPA and the AFA are supportive of the majority of this policy, but they haven’t indicated their full support at this stage.
“But we will move to implementation phase with them starting next week to see if we can’t deliver a policy that has their support as well.”
Brogden said individual advisers have also raised technology issues in relation to the policy, specifically how they can get access to life insurance for their clients through the underwriting process.
“We’ll have a working group with the AFA and FPA and advisers to work out how we can best improve some of those processes,” he said.
“This is a significant shift in the way that advisers are remunerated for selling insurance. It is one that will lead, in the medium to long term, to fee reductions.”
“A sustainable insurance industry is key to the long term benefit of all stakeholders, particularly consumers, and the FSC’s new framework is a solid first step in the right direction. However there is much devil in the detail to now finalise and negotiate,” AFA chief executive Richard Klipin said in response to the FSC framework.
