UPFRONT life insurance commissions will fall by more than half the current maximum over the next three years under reforms agreed by the life insurance industry.
The changes follow an ASIC review that found a clear need for reform across the sector and a strong correlation between high upfront commissions and poor consumer outcomes.
Under the changes, providers will receive a maximum total upfront commission will be 60 per cent of the premium in the first year of the policy from
July 2018, stepping down from 120 per cent at present to 80 per cent in 2016 and 70 per cent in 2017.
From January 1, 2016 there will be a maximum ongoing commission of 20 per cent of the premium each year.
Life insurance companies will also offer fee-for-service products to support advisers who wish to operate on that basis.
The Financial Services Council will develop a life insurance code of conduct by July 1, 2016.
Council on the Ageing chief executive Ian Yates welcomed the agreement, but said self-regulation of the sector may not be enough to protect consumers, with many advisers still being paid up-front and ongoing commissions.
"The fact that the life insurance industry is the only part of the industry where financial incentives are allowed to be paid still raises serious concerns," he said.
"There will still be conflicts of interest when recommending complex financial products that are so vital for the financial security of millions of Australians.
"People deserve to be sure their life insurance policies will provide the safety net they need at a cost they can afford and which is justifiable, and not be subject to financially motivated 'churn'."
He said COTA also welcomed more information being made available to ASIC to monitor the industy and widen the Approved Products lists
