AFA News 10 September 2020. On behalf of members, in the context of the significant economic impact being caused by the COVID-19 crisis and an expected increase in life insurance lapses for economic reasons, the AFA submitted a request to ASIC, seeking relief on the Life Insurance clawback provisions.
The AFA requested that ASIC consider the following actions:
- Reducing the clawback rate in year two to a minimal level, until the economic impact of the COVID-19 crisis has materially reduced.
- Specifically stating that any clawback exposure can be deferred during a period of a premium holiday.
- Where a client decides to temporarily reduce their level of cover and therefore the premiums as a result of the COVID-19 crisis, to defer any clawback payment until the client has the opportunity to subsequently reinstate the cover to the original level.
- ASIC to clarify that life insurers can seek the recovery of a clawback amount over a 12 month period, in order to avoid a huge impact in any one period.
In relation to item 1, last week we were advised that ASIC were unable to amend the clawback rate, as ASIC does not have the power to amend the clawback rates in existing arrangements between insurers and AFS licensees. In this context, we do not believe that there is anything further that we can do to achieve a reduction in the clawback rates.
In relation to items 2 and 3, ASIC has acknowledged that clawback provisions would ordinarily be triggered in these circumstances. However, they have agreed to raise the issue with Treasury to see if the law could be amended to exempt these situations from the clawback requirements. We will continue to pursue this issue.
In relation to item 4, and our request on payback timeframes, ASIC has this week provided additional guidance on the application of clawback in their COVID-19 advice related information page, including making the following points:
What time period do I have to repay life insurance commissions?
- If financial advisers are having difficulties in repaying clawed back commissions, they should speak to the relevant life insurer.
- The law does not prescribe a time period for repaying commissions that are being clawed back because a life insurance policy has been cancelled or reduced in the first two years.
- This means that it is open to advisers and life insurers to agree to more flexible repayment timeframes.
This is a challenging period and we will continue to advocate for our members who are acting in the best interests of their clients. We encourage any member who has experienced a COVID-19 related lapse and clawback to discuss this with the insurer and to negotiate the terms for repayment.
If you have any questions related to this or any other policy issues, please contact policy@afa.asn.au.
Issued 10.09.2020. AFA Policy & Education Update
