The Life Insurance and Advice Working Group’s much-anticipated response to ASIC’s review of the risk advice sector has been released.
In the report, released today, LIAWG-appointed independent reviewer John Trowbridge makes 11 recommendations, with adviser remuneration changes top of the list.
The report recommends a “reform model” be implemented for insurance adviser remuneration over a three-year transition period.
The reform model reflects a level commission regime supplemented by an “initial advice payment” (IAP), which would become available at a client’s first policy inception and then “no more than once every five years”.
This initial payment would only be available where the level commission is a maximum of 20 per cent of premiums; the IAP is paid from the insurer to the adviser on a per client basis; and the IAP is a “maximum of $1,200 or, for customers with annual premiums below $2,000, no more than 60 per cent of the first year’s premiums”.
This payment will also only be available for personal advisers, not general advice or direct sales, including group life policies through super.
The report also recommends that all commissions and payments be “fully transparent” to the client, but that in addition, “the adviser and client remain free to agree on fees for services that are additional to the insurance premium”.
“The single IAP is intended to address the problem of an adviser having a financial incentive to replace a client’s existing policy with a new one, often referred to as ‘policy churn’," the report states.
The change would reduce aggregate costs of life insurance protection by between 5 to 10 per cent, it anticipates.
The report also recommended extensive changes to licensee remuneration and insurer conduct, including a requirement for licensees to assess their internal cultures and a code of conduct for insurers akin the the existing general insurance code.
To read the full report visit: www.riskadviser.com.au/pdf/Trowbridge-report.pdf