** Updated** The AFA, FSC and the FPA have all agreed on an official framework for the life insurance industry.
The framework covers 14 point proposals, firstly one to introduce a hybrid commission structure with a maximum upfront commission of 60 per cent of the premium in the first year with an ongoing 20 per cent renewal commission.
Starting from 1 January 2016, upfront commissions will be capped at 80 per cent and then reduced to 70 per cent from 1 July 2017, before settling at 60 per cent from 1 July 2018.
Also agreed to was a three-year retention or clawback period to commence on 1 January 2016 and a ban on other volume-based payments with appropriate grandfathering arrangements consistent with the FOFA laws.
Life insurance companies will also be required to offer fee-for-service insurance products to support advisers who wish to operate under this model.
The proposal also outlines that the government is to consider measures to widen dealer group approved product lists by 1 July 2016.
Also proposed was the introduction of a Life Insurance Code of Conduct which is to be developed by the FSC by 1 July 2016.
Commenting on the new framework, AFA chief executive Brad Fox said the final position represents a compromise that, while challenging, is at least workable for most advisers.
He added that it offers a package of measures and a transition period that will see advisers, licensees and insurers share the responsibility for improving the outcomes of retail life insurance advice.
“This has been a very difficult eight months,” Mr Fox said.
“The ASIC Report created an opportunity at the outset for industry to come together and seek a solution to the issues raised without having government dictate the measures. Our intention in this process was always to find a united industry solution.”
Commenting on the remuneration proposals, Assistant Treasurer Josh Frydenberg said the government "welcomes the significant reform package" from the AFA, FSC and the FPA.
"Having previously expressed my preference for industry to develop genuine solutions to the problems identified in ASIC's Report 413 Review of Retail Life Insurance Advice (2014) rather than for the Government to act unilaterally, I welcome industry’s response."