The Insurance Council of Australia (ICA) is concerned over proposed legislative amendments to introduce a requirement to obtain client-informed consent prior to accepting commissions, it says in a submission to Treasury.

ICA says the planned amendments “do not appear to reflect the policy intent” set out in the Quality of Advice Review (QAR) final report and explanatory materials for draft Treasury Laws Amendment Bill 2024: Quality of Advice Tranche 1.

The ICA submission says its key worries relate to product issuer liability and application to general advice scenarios.

Under the draft legislative changes, the commission consent requirement is introduced as a condition to the broader exemption for conflicted remuneration that applies for general insurance products.

“This is significant because it results in the consent requirements becoming a condition of an exemption, and any failure to comply eliminates the exemption in its entirety,” the ICA submission says.

“In this scenario, any remuneration paid is unlawful which exposes the recipient, their employer, and the product issuer to civil penalties.

“The proposed approach places product issuers at risk of civil penalties if an intermediary does not satisfy the proposed consent requirements.”

QAR Reviewer Michelle Levy in her final report proposed retaining the commissions model and added client consent as a guardrail to help consumers make “informed” choices on renumeration arrangements.

In her final report, she states “consent is not required to be provided to, or checked by an insurer…it is the responsibility of the advice provider to obtain consent and to retain a record of the client’s consent.”

“This does not appear consistent with the approach recommended in the final report, which clearly indicates that the consent process is between the client and the intermediary, and that the product issuer does not need to have visibility over (let alone be involved in) the consent process, the ICA submission says.

“We do not consider that it would be a good public policy outcome for this reform to result in a scenario where an insurer is at risk of breaching the law, and exposed to civil penalties, regarding potential non-compliance with a process that they are not required to be involved in, or even aware of.”

ICA says at this stage the commission consent requirement is only applicable to retail clients getting personal advice, meaning the measure will cover some insurance lines.

But the peak body is looking at the longer-term should the Federal Government decide to expand the definition of personal advice, as recommended in the QAR final report.

“The potential impact of this reform would be much more significant if the government expanded the definition of personal advice… the combination of those reforms would have a much broader impact on the provision of insurance through intermediated distribution channels,” the ICA submission said.

Financial Services Minister Stephen Jones has said a decision on the personal advice definition and other outstanding recommendations will be made by the end of this year.

Click here for more from the submission.