As the finer points of the life insurance framework are yet to be finalised, the AFA said it is working hard to influence the specific details of the three-year clawback policy.
AFA chief executive Brad Fox said while the three-year retention period is a “blunt instrument”, it does have strong government support as a measure to deal with inappropriate product replacement.
As a result, Mr Fox said the association is working on “influencing” the details of the clawback policy so that they are fair and do not adversely affect good advisers.
“Shifting the burden of responsibility to the adviser where policies lapse outside of their control is unfair,” Mr Fox said.
“Over the coming weeks we will continue to apply pressure for clawback to apply only with replacement product advice and not situations that sit outside the advisers’ control, like a client-directed lapse because of unaffordability.”
Mr Fox also said the AFA is seeking confirmation from insurers that they won’t apply clawback where the policy lapses because of a successful claim, for example of a life, TPD or trauma policy.
“We are concerned that the three-year clawback not be used to shift an unreasonable burden from the institutions onto small business financial advisers that do the right thing,” Mr Fox said.
Having to work to a “tight deadline” to reach a compromise on the reforms meant a lot of detail has been left out when the proposals were first announced, he said.
“Advisers, especially business owners, deserve clarity and reasonable lead times to adjust to a change in the rules, especially of this magnitude.
“The pressure is very much on the insurers to consult early and thoroughly with the advice associations. We certainly want to see fairness in the detail.”