Reactions to the Life Insurance Framework, as proposed industry reforms have been labelled, follow traditional lines, with industry super funds arguing they do not go far enough.

Association of Financial Advisers (AFA) CEO Brad Fox admits negotiations between bodies representing advisers and life insurers were not easy.

“We didn’t get everything we wanted, but it was certainly beneficial to the outcome that the AFA and Financial Planning Association (FPA) worked so well together on the issues,” he said. “Several unworkable options were raised during the debate.

“Practices will still be under financial pressure to adjust, but for most the transition period is long enough to successfully redesign their advice processes and charging models.”

Mr Fox says the AFA will support advisers during the transition.

“We know the average cost to a financial advice practice to deliver and implement quality life insurance advice is about $3000, yet advisers will receive less than this in commission for advice provided to the average client,” he said.

“Business models will change. We will hold insurers and other industry stakeholders accountable to deliver the efficiency gains that are needed.”

FPA CEO Mark Rantall agrees the negotiations were “challenging, and it has caused much debate and discussion within the industry”.

“We used the FPA life insurance blueprint in discussions with industry, and while we were unable to secure every recommendation we put forward in it, we believe a sensible and practical outcome has been reached.”

While the Financial Services Council is singing the praises of the reform package, Industry Super Australia (ISA) says the recommendations are “inadequate” to tackle problems identified by the Australian Securities and Investments Commission (ASIC).

ISA Director of Public Affairs Matthew Linden says the proposals reduce commissions, but they will not stop churning.

“While we support the proposal to ban volume rebates and put in place clawback provisions, the proposals do not go far enough, given the significant detriment to consumers identified by last year’s ASIC report on life insurance,” he said.

“The proposal leaves in place commissions as the dominant remuneration model in life insurance advice. While 60% commissions are lower than current levels, they are still going to lead to biased advice and poor consumer outcomes.”

The Consumer Action Law Centre agrees the proposals do not go far enough.

“While life insurance advisers are still getting commissions, regardless of the size of those commissions, advisers will not be truly independent,” CEO Gerard Brody said.

“This model perpetuates disincentives for advisers to provide strategic advice, or advise consumers to take out group life cover through super. In a commission-based system, an adviser must work for free when giving that kind of advice.”

Life insurers have welcomed the proposals, although ClearView MD Simon Swanson told insuranceNEWS.com.au he is waiting to see the fine print.

“The devil is always in the detail,” he said. “I think it is too early to comment on the proposals.”

Suncorp Life CEO Geoff Summerhayes is unrestrained in his praise for the plan.

“The announcement provided a clear direction for the industry and was a well-considered response to a number of delicate issues,” he said. “The industry has known change is imminent and this announcement provides much-needed certainty about a way forward.

“We can now move on from discussion and debate to focus on actions that will improve the sustainability of the life insurance industry.”

Mr Summerhayes singles out two politicians for praise in striking a deal, rather than the adviser associations.

“In my opinion, the prior and ongoing work of Shadow Treasurer Chris Bowen and more recently Assistant Treasurer Josh Frydenberg has been outstanding,” he said. “These ministers have facilitated a solution that appropriately balances the interests of the stakeholders involved.”

The two parties that sparked the debate – ASIC and industry review chairman John Trowbridge – say they will watch how the proposals are implemented.

ASIC will “consider the reform package”, while Mr Trowbridge says he will be a “keen observer during the next three years of the industry’s implementation of the reforms”.