The author of the Trowbridge report into life insurance practices and remuneration says his proposed package of reforms will shift insurers’ focus from competing to win advisers and licensees to more effectively competing for the business of individual clients.

In a report handed down this morning, John Trowbridge makes a total of 11 recommendations – six on policy; four on implementation; and a recommendation that  the entire package be reviewed in 2020.

“These changes are transformative as they are designed to stimulate insurers to compete for customers instead of for licensees and advisers,” Trowbridge said in a statement.

“They will remove misaligned incentives for new and replacement policies and align the interests of insurers, licensees and advisers.”

Trowbridge said that it was critical that remuneration of advisers and licensees by insurers be restructured.

“This suite of recommendations is designed to achieve improved alignment of interests, including the removal of conflicts over remuneration and advice, along with productivity gains in the life insurance and advice sectors,” he said.

Trowbridge recommends that the industry adopt level commissions to a maximum of 20 per cent of premiums supported by an initial advice payment (IAP) not exceeding $1200 per customer; and for annual premiums below $2000, to no more than 60 per cent of the first year’s premiums.

The report also recommends changes to licensee remuneration, specifically that licensees be prohibited from receiving benefits from insurers that might influence recommended product choices or the advice given by the licensees’ advisers.

Trowbridge is handing down his report at the FSC Life Insurance Conference in Sydney and will speak further on the report’s contents and its recommendations later this morning.

• Statement from the FSC on the Trowbridge Report 
• Assistant Treasurer: Review of retail life insurance advice 
AFA says more work to be done to ensure best outcomes for consumers

Policy Recommendation 1: That the Reform Model for adviser remuneration, being a system of level commissions supplemented by a client-based Initial Advice Payment available at a client’s first policy inception and then no more often than once every five years, be adopted by the life insurance industry with progressive application through a transition period.

Policy Recommendation 2: That there be a three year transition period where the five year rule is applied on a best endeavours basis immediately and, from a suitable date in 2016 for a period of 2 years, the industry operate according to the current hybrid commission arrangements with a cap on initial commissions.

Policy Recommendation 3: That licensees be prohibited from receiving benefits from insurers that might influence recommended product choices or the advice given by the licensees’ advisers.

Policy Recommendation 4: Ensure competitive access and choice for all advisers and their clients to available life insurance products by means of every licensee including on its Approved Product List (APL) at least half of the authorised retail life insurance providers.

Policy Recommendation 5: That all licensees, in conjunction with their advisers, re-examine their culture, behaviours and practices regarding the advice process with the aim of raising consumer understanding of life insurance, ensuring informed consent from clients and reducing the administrative burden on advisers.

Policy Recommendation 6: That a Life Insurance Code of Practice be developed that is modelled on the General Insurance Code of Practice and aimed at setting standards of best practice for life insurers, licensees and advisers for the delivery of effective life insurance outcomes for consumers.

Implementation Recommendation 1: That ASIC be asked to endorse Policy Recommendations 1, 2 and 3 relating to adviser remuneration and licensee remuneration and, on the basis of that endorsement, to impose a suitable set of licensing conditions on life insurers that would give effect to these three recommendations.

Implementation Recommendation 2: That the recommendation that all licensees include at least half of the authorised retail life insurance providers on their APL be implemented by all individual licensees as soon as practicable and that ASIC review APL practices in order to provide suitable guidance to licensees in this area.

Implementation Recommendation 3: That a task force representing professional associations, licensees and advisers be established to explore and make recommendations to the advice sector, in conjunction with ASIC, for improving the advice process and associated documentation.

Implementation Recommendation 4: That a Life Insurance Code of Practice as at Policy Recommendation 6 be developed by the life insurance providers in a consultative process that embraces licensees, advisers and consumers.

Review Recommendation 1: That changes made in the life insurance industry as a result of the recommendations in this report be reviewed in 2020 to assess their effectiveness and, if then appropriate, to make further changes for the benefit of consumers and the industry.


Simon Hoyle is head of market insight for CoreData Research.
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