The Australian Securities and Investments Commission (Asic) will implement the new cap and clawback policies as part of its life insurance reform package on 1 January 2018.
The Asic Corporations (Life Insurance Commissions) Instrument allows commissions to be paid for the sale of life insurance but sets limits on the payment levels.
It also requires a 100% clawback of commissions paid if the policy is cancelled within the first year, falling to a 60% clawback during the second year.
Asic said the intent behind the changes, first mooted in November 2015, was to reduce the incentives for advisers to provide inappropriate advice to clients.
Caps and clawbacks
The commission cap will have a phased introduction, unlike the clawback that will start from 1 January 2018.
Adviser commissions will be capped at 80% until 1 January 2019, at which point it will be lowered to 70%, eventually hitting the new cap of 60% on 1 January 2020.
Peter Kell, deputy chairman of Asic, said: “The commission caps and clawback requirements are important steps in improving the quality of advice.
“Asic is warning advisers against inappropriately switching clients into new policies prior to this commencement date where this is not in their clients’ best interests,” he warned.
He added that: “Asic is currently using data from insurers to undertake targeted surveillances to seek out any advisers engaging in this misconduct.”
A post-implementation review of the commission cap and clawback will be conducted in 2021 to assess the impact of the reforms.