(Current as at 12 April 2016)
On 7 April 2016 the Government released Exposure Draft Regulations intended to implement the Government’s retail life insurance advice reform package in conjunction with the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 (the 2016 Bill) (please refer to previous updates for details on the reforms and the 2016 Bill).
In summary, the Exposure Draft Regulations make the following key changes:
Stamp duty transition period
They allow for stamp duty payable in relation to products that include a death benefit to be included in the policy cost payable for the product (e.g. for the purpose of commission calculations such as the benefit ratio and clawback requirements), but only for a temporary period of 12 months from the commencement of the regulations.
Prescribed carve-outs for ‘clawback’ arrangements
They prescribe certain limited circumstances under which the ‘clawback’ requirement (i.e for an arrangement under which a benefit is payable to include an obligation to repay all or part of the benefit in certain circumstances and in accordance with an amount determined by ASIC as acceptable) is not intended to apply:
- incases where the product or one of the products is cancelled or not continued, clawback requirements are not intended to apply if the cancellation or non-continuation occurs:
o because the insured:
- commitssuicide;
- commitsan act of self harm; or
- reachesan age that results in cancellation of the product under its terms; or
o where the person to whom, or in relation to whom, the product is issued is not correctly
described due to an administrative error.
- incases where the policy cost for the product, or one of the products, during a year or across 2 years is reduced, clawback requirements are not intended to apply if the reduction is because:
o the issuer and the person to whom the product is issued agree that there is a reduction in the risk to the health of an insured person insured (e.g. a reduction in premium as the result of a decision by the insured to quit smoking would not trigger clawback); or
o a rebate is paid or a discount applied, and it is reasonable in all the circumstances to conclude that it is paid or applied to induce the person to whom the product is issued to acquire, or to continue to hold, the product (e.g. clawback would not be triggered where an insurer offered a loyalty-based premium reduction).
Grandfathering arrangements
They also aim to ensure that existing life insurance remuneration arrangements are grandfathered in a manner broadly consistent with FOFA by prescribing additional situations in which the amendments do not apply. These
include:
- benefitsgiven under employee-employer remuneration arrangements entered into prior to the commencement day of the 2016 Bill as an Act where:
o the benefit is paid within 6 months after the nominal expiry date for the agreement (if the benefit is paid in accordance with an enterprise agreement or a collective agreement-based transitional instrument); or
o the benefit is payable in relation to a period that ends before the 1 year anniversary of the 2016 Bill’s commencement day as an Act (if the benefit is paid in accordance with another remuneration arrangement); and
- benefitspaid in relation to a product issued to a person after the day that the 2016 Bill commences as an Act (post-commencement product) if the person held another life risk insurance product immediately before that day (pre-commencement product) and they acquire the post-commencement product by exercising an option given to them under the pre-commencement product (e.g. where a customer elects to take up term life coverage after the commencement date if the optionto take it up was given to them as part of a life insurance product held immediately prior to the commencement date).
Grandfathering means that the existing rules continue to apply to existing arrangements, while new rules applyto new arrangements.
Submissions
The closing date for submissions on the Exposure Draft Regulations is 28 April 2016.
IMPORTANT NOTICE
This document is designed to provide helpful general guidance on some key issues relevant to this topic. It should not be relied on as legal advice. It does not cover everything that may be relevant to you and does not take into account your particular circumstances. It is only current as at the date of release. You must ensure that you seek appropriate professional advice in relation to this topic as well as to the currency, accuracy and relevance of this material for you.
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