Australia to allow 60% commissions on life insurance products

Added 5th October 2016

Australia’s government has confirmed it will allow life insurance brokers to pocket commissions as high as 60%, after resisting calls for them to be banned altogether.

Australia to allow 60% commissions on life insurance products

Kelly O'Dwyer, the Minister for Revenue and Financial Services, defended the controversial decision to leave upfront broker commissions, adding that they would now be capped at 60%, reported the Sydney Morning Herald.

The cap is part of wider reforms into the country’s life sector, known locally as the ‘LIF reforms', and will be introduced this month before a government committee examines the sector in June next year.

At present, a broker gets an average of around 120% commission payment each time they sell a new policy.

FOFA regulations

Life insurance commissions were exempt from the future of financial advice (FOFA) reforms, introduced in 2012, when commissions for all other financial products were banned.

However, commissions in Australia’s $44 billion life industry have continued to come under fire in recent years, with brokers accused of ‘churning’, where they change client policies in order to receive large commission payments.

Cleaning up act

The country’s life insurance industry has been looking to clean up its image after a report by the Australian Securities and Investments Commission (ASIC) into the sector two years ago found 37% of advice broke the law. 

The study found that 45% of advice failed when high upfront commissions were taken, compared with a 93% pass rate when other forms of commissions were taken. 

Speaking at the Association of Financial Advisers conference on Wednesday, O'Dwyer said the government is taking a "more measured approach" to commissions in the sector instead of banning them outright.

"It would have been easy for the government to simply accept the recommendations of the Financial System Inquiry, and move to a level commission model. But we didn't do that," reported the Herald.

"Instead, we chose to work co-operatively with industry to develop a package of reforms that balance the need to maintain industry viability, and improve consumer outcomes."

Bad timing

Peter Johnston, executive director of the Association of Independently Owned Financial Professionals, criticised the government for introducing reforms before the inquiry into the sector.

"This will be a fruitless inquiry because they've already passed legislation," he told the paper.

He added that commissions should be phased out altogether over time but left higher than 60% in the short term to allow the industry to adjust.

Visitor's Comments Add your comment

Add Your Comment

We won't publish your address

About Author

Monira Matin

Senior Reporter

Monira joined International Adviser in March 2016 from Informa Global Markets where she worked as a eurobond reporter for over two years, covering fixed income markets. She has previously held a number of editorial positions covering politics, insurance and technology. Monira has a degree in Journalism and Economics from City University.


The turning tide of global equities

The turning tide of global equities

Despite a gloomy beginning to the year, global equities have started to outshine the backdrop of economic malaise that threatened their upward trajectory, with the index delivering 19.2%




Ashburton International
Ashburton International

Ashburton Investments is a new generation investment...



Offshore Bond Workshop Glasgow 2016
Offshore Bond Workshop Glasgow 2016

22nd November 2016
The Grand Central Hotel, Glasgow

Future Advisory Forum Dubai 2016
Future Advisory Forum Dubai 2016

23rd November 2016
Shangri-La Hotel, Dubai 

Sponsored Content

Investment Strategy