Both the AFA and the FPA are calling on the federal government to amend the draft legislation to reform the life insurance sector to ensure it does not lead to any unintended consequences.
In the AFA’s submission to Treasury responding to the draft legislation, the association said that in its current form, the bill “exceeds” the original intent of the Life Insurance Framework agreement by giving ASIC the power to “unilaterally determine commission caps in the future”.
"Our concern is that although this appears to give ASIC the power to enforce particular commission arrangements, it also gives [ASIC the] power to determine the quantum of those commissions, both now and in the future," the submission stated.
"We do not agree with the drafting that gives ASIC unilateral ability to make future changes to life insurance remuneration and can't support that as it stands," it said.
The AFA proposed the rewording of section 963BA(2) of the legislation – which offers the powers to ASIC – to include that the regulator “must undertake stakeholder consultation before making any changes to remuneration”.
Further, the AFA said the legislation should include that the regulator “must attain ministerial approval before implementing any material changes to remuneration arrangements”.
In the FPA’s submission to Treasury, the association pointed out that while the legislation is for insurance contracts entered into from 1 July 2016, it is possible that some policies applied for before this date may also be affected.
“We note that while an insurance contract may be written and signed by a consumer today, there is often a delay before an insurer reviews and issues the policy,” the submission said.
“We therefore recommend that a grace period – for example, three months – be included within the legislation so that policies submitted with the insurer prior to 1 July 2016 and issued within a reasonable period of time do not unintentionally get affected by the commission framework which have been agreed and entered into with the customer."