Life Insurance Reform

The Australian life insurance industry has been subject to intense review since October 2014 when the regulator, ASIC, released a flawed report on life insurance (Report 413 - see below).  Recommendations from the Financial System Inquiry and the Trowbridge report followed also calling for reforms to life insurance advice remuneration and the life insurance industry generally.

In November 2015, the Minister announced a package of reforms providing for:

  • a three-year transition toward lower upfront but higher ongoing hybrid commissions,
  • an ASIC Review of policy cancellations over the three-year period,
  • a Code of Practice for life insurers,
  • APLs to be widened through an FSC industry standard, and
  • shorter more effective SoAs for life insurance advice.  

As the below list of activities shows, the AFA has been active in all aspects of this holistic approach to the issues in the industry and thanks to the contributions of AFA Members we have achieved several compromises that would not have taken place otherwise.

We will continue to advocate for great advice for more Australians about life insurance.

FSC Life Insurance Draft Code of Practice 2.0

The AFA actively participated in the consultation process as part of the development of the first version of the FSC Life Insurance Code of Practice.  This is a major update to the first version (which is also located on this page), particularly in the context of the incorporation of the Insurance in Super Voluntary Code of Practice. 

Click here to view the AFA’s submission to the FSC on version 2.0 of the Draft Life Insurance Code of Practice.

Industry Standard on Approved Product Lists

One of the last pieces of the reform package announced by the Minister in November 2015 progressed to a tangible state in April 2017 with the Financial Services Council releasing a draft Industry Standard for approved product lists.  

Whilst the Standard in its first iteration is framed mostly as guidance with a limited number of sections being binding and will only apply to approximately 16 advice licensees in the market who are members of the FSC (under half the population of advisers), that group includes all of the larger licensees responsible for personal advice to retail clients in Australia who have publicly committed to improving standards.  The Standard also puts the clients' interests at the front when considering approval of risk products and insurers, outlines all the criteria you would expect to be considered when approving insurers and fills a gap in the regulatory framework that has been overlooked for too long.

Accordingly, the AFA sees this as a good first step in widening APLs, standardising the way that life risk product selection committees operate, setting standards for 'Off APL' / legacy product approval requests, APL reviews and addressing conflicts of interest in approval procedures.

Thanks again to the input of the Life Insurance Quality Advice Member Committee, advisers and their clients were at the forefront of our seven recommendations to improve the Industry Standard before it's released.

Click here to view the AFA's submission to the Financial Services Council.

Insurance in Super Working Group

In late 2016, a working group was formed by the FSC, AIST, ASFA, IFF and ISA to develop standards around insurance within superannuation practices and protocols.  The Working Group's first discussion paper on Account balance erosion due to insurance premiums was released in March 2017, and followed shortly after in April 2017 by the second discussion paper on Claims handling

With input from the Life Insurance Quality Advice Member Committee, the AFA represented the interests of advisers and superannuation members and presented over 21 recommendations to improve the Working Group's proposals on both discussion papers.

Click here to view the AFA's submission to the Insurance in Super Working Group


In September 2017, the ISWG issued a draft Code of Practice and invited submissions from interested parties.  Some of the key proposals included putting a cap of 1% of member earnings (income) on the cost of insurance premiums and that premiums should cease 13 months after a member ceases making contributions.  The AFA has made a submission expressing our concerns about the consequences of some of these proposals.

Please click here to view a copy of the AFA submission.

Parliamentary Joint Committee Inquiry into the Life Insurance Industry

The Parliamentary Joint Committee on Corporations and Financial Services has been referred an Inquiry from the Senate with the following Terms of Reference.

The AFA has always taken the position that life insurance reform needs to be approached holistically.  As AFA Members are life insurance experts, we will have a voice in this inquiry -- particularly with a view to recommending improvements to better protect consumers engaging through the direct and group insurance channels -- to complement the work already underway with the advised channel. 

Click here to view the AFA's submission to the Parliamentary Joint Committee.

Click here to see the AFA's response to a question on notice from Senator O'Neill about insurer use of daily activity diaries.

Click here to view the AFA's Supplementary Submission -  PJC Inquiry into the Life Insurance Industry 14 Sept 2017

Revised Life Insurance Remuneration Reform Regulations

On 16 October, Treasury released revised Regulations to support the Revised LIF Bill that was introduced to the House of Repesentatives on 12 October.  The AFA welcomed the Revised Regulations noting improvements in the Regulations that were as a result of AFA advocacy for financial advisers.  The AFA considered that all that emains before the Regulations can be tabled are some minor fine tuning.

Click here to view the AFA's submission to Treasury.

Parliamentary Joint Committee Inquiry into the Life Insurance Industry

On 14 September 2016, the Senate agreed to a motion from Senator John Williams to refer the life insurance industry to the Parliamentary Joint Committee on Corporations and Financial Services.  This is a different inquiry to the two earlier Senate inquiries which focused on life insurance advice and adviser commission legislation.

Click here for more information about the Terms of Reference for that Inquiry.

The AFA will shortly be seeking input from AFA Members on this important Inquiry.

Actuarial Advice within Life Insurers and the Role of the Appointed Actuary

The Australian Prudential Regulatory Authority (APRA) has proposed several measures to refine the actuary role within insurers and made some specific proposals for life insurers.  The AFA considers these reforms long overdue and part of the holistic approach needed to address the problems within the life insurance industry.  

Click here to see APRA's proposals.

Click here to view the AFA's submission to APRA.

Life Insurance Code of Practice

From the AFA’s first meeting with the Life Insurance Advice Working Group (LIAWG) in late 2014 we have called for a Life Insurer Code of Conduct that includes the relationship between insurers, licensees, advisers and clients. The first version of the draft Code was released in March 2016 and it was largely a copy of the General Insurance Code of Practice that did not recognise the particular issues relating to life insurance, did not go far enough to protecting consumers' interests or restoring confidence and definitely did not respect the role of financial advisers or the value of quality financial advice.  The Code has since been updated and although there are several improvements, it doesn't go far enough.

The FSC intend to launch the Life Insurance Code of Practice on 11 October 2016.  The AFA has been very actively involved in the development of this Code and we don't think it's ready for launch.  

In the AFA's view, the Code needs to impact the organisational behaviours that unreasonably conflict an adviser in their Best Interests Duty and induce inappropriate replacement advice. This means the Code must contain commitments to the advice profession as well as to consumers. We believe that the Code could represent a catalyst to form a new culture within insurers; one that positions the consumer’s health and well being alongside sustainable financial performance and therefore restore the social licence granted to life insurers to protect Australian’s families when they are at their most vulnerable.

We have called on the FSC to make substantial improvements to the draft Code - even if it means delaying implementation beyond the announced implementation date of 1 October 2016 - and to assist with improving the Code we have made 29 clear recommendations.

Click here for more information about the improvements that need to be made before the Code should be launched and to view the AFA's submission to the FSC.

Life Insurance Statements of Advice Projects

In June 2016, following meetings with ASIC, the AFA was invited to participate in a project to develop shorter, more effective Statements of Advice (SoA) for life insurance. This was part of the reform package announced by the Minister in November 2015.  The AFA have had one meeting so far with the engaged consultants where, drawing from our expertise in life insurance advice, we gave detailed feedback on the criteria for the project.  Our initial feedback was very well received from the independent consultant, and we are awaiting further update from the consultants.

Coincidentally, the FSC also has a project on foot to develop shorter life insurance advice SoAs.  In August 2016, the AFA provided very detailed feedback about why we considered that their model SoA required further improvement, how it could be further shortened and made more relevant to the end consumer. We considered that it was largely a combination of several SoAs currently being used by institutional licensees with a strong compliance focus.  We await the FSC's response to our input.

Click here to view the AFA's feedback and suggestions to the FSC.

ASIC Review of the Life Insurance Reforms

Part of the Minister's package of reforms announced in November 2015 was a requirement that life insurers provide information on policy cancellations to ASIC.  The AFA considers that this is a keystone in the reforms because with granular data on cancellations we can finally have a substantive discussion on the reasons for policy cancellations and get to the bottom of allegations that 'churn' is a problem in the profession.  The appropriateness of replacement advice should be the focus, not the quantity.

We have made strong and direct representations on the further surveillance and reporting of retail life insurance advice ahead of the future ASIC Review and we expect that Review to be delayed beyond 2018 given the later commencement of the Life Insurance Remuneration Arrangements Bill (see below).  Focus on this will have to be maintained and the AFA is convening a Life Insurance Quality Advice (LIQA) Member Committee for this purpose.  

Click here for more information about the Life Insurance Quality Advice Member Committee and to express an interest in being involved.

Scrutiny of Financial Advice Senate Inquiry

On 2 March 2016, the Senate added additional wide-reaching terms about the life insurance industry to the Economics References Committee as part of its inquiry into the implications of financial advice reforms.  The AFA proposed a comprehensive series of recommendations about how insurers, associations, licensees, regulators and government can support consumers accessing quality advice on life risks and improve insurer culture and practices.  The Inquiry lapsed upon dissolution of Parliament for the 2016 federal election.  We are awaiting to see whether the Senate will resume the Inquiry.

Click here to view the AFA's submission to the Senate Committee. 

Life Insurance Remuneration Arrangements Regulations

Just prior to the double dissolution of Federal Parliament, Treasury released draft Regulations to accompany the Bill (see further below) and to clarify some aspects of the Framework that were unclear in the Bill.  

We immediately noticed that if the Regulations were introduced in the draft form, it would result in an unequal playing field for different distribution channels and we are seeking a common start date for all channels.  The AFA has been working to ensure drafting amendments will result in fair and equitable treatment across channels, so that no unfair advantage is given to different types of advisers or to direct channels.  Our position on this has never changed. 

We also provided detailed recomendations on other aspects of the draft Regulations, such as exemptions to the clawback triggers.

The subsequent federal election and focus on the Government's budgetary and superannuation measures has held up progress on the Regulations and we are awaiting to see the updated version.

Click here to view the AFA's submission to Treasury about the draft Life Insurance Remuneration Arrangements Regulations.

Senate Progress of the Life Insurance Remuneration Arrangements Bill

On 25 February 2016, the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 was referred to the Senate Economics Legislation Committee to ‘consider the implications of the Bill on the life insurance industry and to allow relevant stakeholders to voice their opinions on the Bill’.  Thanks to the input from AFA Members, we lodged a detailed submission to the Senate Committee that ensured the Senators were aware of the comprehensive issues facing the life insurance advice profession.  The Bill lapsed upon dissolution of Parliament for the 2016 federal election.  We expect it to be re-introduced shortly.

Click here to view the submission to the Senate that the AFA lodged.

Click here to view the Senate Committee's Report.

ASIC's Class Order to oversee the Life Insurance Framework

In February 2016 after the release of the draft Bill, ASIC released a consultation paper to outline how it proposed to oversee the Framework's operation - as provided for in the Bill.  The AFA has been in ongoing discussions with ASIC about ASIC's role in LIF to ensure competitive neutrality, equal application of LIF and granular data on policy cancellations.

Click here to view the AFA's submission to ASIC on the LIF Class Order.

The First Version of the Life Insurance Remuneration Arrangements Bill

In response to the Life Insurance Framework legislation released on 6 November 2015 by the Government, the AFA achieved refinements to the clawback provisions.  AFA National President Deborah Kent said that as a result of a combined representation effort by the AFA and FPA the three-year clawback period has been reduced to two years and brings greater fairness to the LIF.

Please click here for more information on the LIF improvements.

The AFA reviewed the Government’s release of Exposure Draft Legislation for the Life Insurance Framework and the release of draft legislation on Professional Standards for Financial Advisers in December 2015.  Through the contributions of AFA Members, we lodged a detailed submission to Treasury explaining how the draft Framework was flawed and recommending several improvements that were later reflected in the updated Bill.

Please click here for the submission that the AFA lodged on the first draft of the Life Insurance Framework.

Trowbridge Final Report

On 26 March 2015, John Trowbridge released his final report.  The report was his own, and not a report from the AFA.  The AFA disagreed with significant components of the report and we believed that a comprehensive review of the implications of recommendations is required before any changes are implemented.

Click here for a copy of Mr Trowbridge's final report.

Click here for a copy of the AFA media release in response to the final report.

Click here to see an AFA Q&A on the Trowbridge process.

We encouraged AFA Members to read the final report and our submission to the LIAWG.  We also encouraged AFA Members to get involved in the further consultations that must happen before any changes are implemented.

Please click here to see AFA Submission – 5 February 2015 - Response to LIAWG Interim Report

Trowbridge Interim Report

Following the release of the ASIC report on Life Insurance advice on 9 October 2014, the AFA joined with industry body, the Financial Services Council (FSC) to initiate a working group together under independent chairman, John Trowbridge to review the ASIC Report and make recommendations to address the underlying issues.

On 17 December 2014, John Trowbridge released his interim report that addressed a range of issues and options in response to the ASIC report.  Key issues included:

  • The quality of advice,
  • Remuneration and other adviser incentives,
  • Insurer practices and product offerings, and
  • Industry productivity.

Click here for a copy of the Interim Trowbridge report.

John Trowbridge called for submissions in response to his interim report with a closing date of 30 January 2015.  Many advisers contributed to this process by making submissions.  The AFA thanks those Members who were part of this process.

ASIC Report 413

In October 2014, ASIC released a report detailing the outcome of surveillance on life insurance financial advice in the industry.  The report has become the lightning rod of evidence for those who have sought changes to life insurance commissions.  

We explained our issues with the underlying data and the report to media, politicians of all persuasions, John Trowbridge and consumer groups. Despite this the headline persisted that 93% of the sample that failed compliance were written on upfront commissions that represent a conflict of interest in the eyes of those outside the industry.

The AFA has consistently questioned and criticised the sample size and assumptions in the report.  It was a highly targeted report with a sample group that we believed was not reflective of the broader retail life insurance advice market.  Further, it did not differentiate between good insurance advice that failed compliance and inappropriate advice where there was likely to be client detriment.  

Please click here for a copy of the ASIC Report.

Financial System Inquiry

In late 2013 the Australian Government announced the appointment of former CEO of the Commonwealth Bank, David Murray, to oversee a broad inquiry into the Australian financial system.  Throughout the 12 months of the inquiry, the AFA made three submissions and attended a number of consultation meetings. 

The 350-page final report was released on 7 December 2014, making over 40 recommendations.  The most relevant recommendation was the proposal that commissions on life insurance should be limited to level commission terms. Unfortunately the inquiry did not consult with advice associations on this key recommendation.

Click here to view the FSI Reports, Terms of Reference and the three AFA submissions to the Inquiry.

FSC's Replacement Business Framework

A debate on the need for change in life insurance industry was raised through submissions to the Ripoll Inquiry into financial advice laws.  In April 2012, the FSC released a consultation paper to address "churn".  This process evolved into a Replacement Business Framework being announced in August 2012 and included a proposed definition of "replacement business", prohibitoon of take-over terms and a modified proposal around increasing the clawback period on commissions.  

These industry-initiated measures were intended to coincide with the commencement of the Future of Financial Advice reforms.  In February 2013, the FSC announced that it would discontinue the initiative.

Click here for a copy of the FSC's consultation paper.