Numerous reforms in Australia affecting the insurance industry saw progress throughout last year. Retail life insurance, firm culture and financial services were all targeted in a number of regulatory changes and proposed regulatory changes.


In February 2016, the Federal Government released amendments to the life insurance remuneration arrangements under the Corporations Act. The draft Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 (the Amendment Bill) targets conflicted remuneration for benefits paid on life risk insurance products, to “better align the interests of consumers and those providing advice.” As at 16 March 2016, the Amendment Bill is before the Senate.

The Amendment Bill is the product of the Financial Systems Inquiry and a report by Australian Securities Investment Commission (ASIC) into the retail life insurance industry. The report identified a number of concerning trends in the industry in particular the link between the quality of advice and commissions paid to life insurance advisors.

The proposed changes further distinguish the retail life insurance market from the general insurance product market.

The Amendment Bill provides that benefits paid in relation to life risk insurance products will be subject to the general ban on conflicted remuneration going forward. This is the case until ASIC specifies exemption criteria and the products satisfy those requirements. The proposed requirements relate to allowable commission and clawback arrangements. General insurance products have a general exemption from the conflicted remuneration provisions.

The reforms make both allowable commission and clawback requirements precursors to the conflicted remuneration exception. Maximum upfront allowable commissions are proposed and clawback arrangements act to remove incentive to rewrite policies to obtain further commission.

The Amendment Bill also facilitates ongoing reporting to ASIC under its existing powers in the Corporations Act which the regulator will use to review the new arrangements in 2018.

ASIC has released a consultation paper (CP 245) in response to the Amendment Bill setting out its position regarding industry reforms. ASIC endorses a number of the proposals in the Amendment Bill including restructuring commissions and clawback arrangements.

A two year transition period was included in ASIC’s proposal to allow businesses to adapt to the new regime. This position is premised on the strong correlation found by ASIC between high upfront commissions and poor advice.

ASIC has also flagged its intention to undertake information-gathering pursuant to its powers in section 912C of the Corporations Act to require information from life insurers including exited policies, remuneration data and lapse rates.

The Amendment Bill likely signals the last significant development arising out of the Future of Financial Advice reforms that commenced in 2010.


In October 2015, the Federal Government released its response to the Financial Systems Inquiry adopting the bulk of the 44 recommendations made by the Inquiry.

It is expected that the bulk of the reforms in the insurance sector throughout the next year will be a product of the recommendations of the Financial Systems Inquiry.

The reforms anticipated may include expanding ASIC’s power to intervene in financial product development and withdraw or modify products from the market that are harmful. It is expected there will be a number of enhancements of ASIC’s powers in the market.

A review into the capability of ASIC aimed at considering how “ASIC uses its current resources and powers to deliver its statutory objectives and assess ASIC’s ability to perform as a capable and transparent regulator” is also underway. It was expected the review panel, chaired by Karen Chester, would deliver their report by the end of 2015 but it is yet to be delivered.

Once the review is completed, it is expected that draft legislation will be released for consultation addressing ASIC’s powers and other recommendations of the Financial Systems Inquiry.


In June 2015, the federal government announced further refinements to the Future of Financial Advice laws (FOFA laws). The regulation introduces technical refinements to target a number of unintended consequences and ensure consistency with other legislation. Other than the changes to the retail life insurance industry it is not anticipated there will be any further significant changes to the FOFA laws.


In June 2015, ASIC Chairman Greg Medcraft used his address to the Senate Estimates Committee to propose new strategies to target the correlation between poor firm culture and poor conduct in the financial industry.

These strategies include the regulation of culture through risk-based surveillance reviews, the implementation of the “communication, challenge and complacency” framework and the ability to pursue officers for civil penalties where culture is responsible for administrative breaches.