Financial advisers will be weaned off large upfront commissions in the next three years under proposals agreed by the main industry associations.

From July 1 2018 the maximum upfront commission will be 60% of a policy’s first-year premium, with that proportion declining from 80% at July 1 next year and 70% in 2017.

The Association of Financial Advisers, the Financial Planning Association and the Financial Services Council (FSC) have agreed to the proposal.

Trails will be set at 20% of the premium from January 1 next year, when a three-year retention period will also take effect.

If a policy is moved in the first year, the adviser will forfeit 100% of the upfront commission, falling to 60% in the second year and 30% in the third.

Life insurers will have to provide data on policy replacements to the Australian Securities and Investments Commission from January 1 next year.

Volume payments on life sales will also be axed from July 1 next year, although unspecified grandfathering rules will be introduced.

Other proposed measures include a life insurance code of conduct, to be developed by the FSC before July 1 next year. The Federal Government will consider ways to expand approved product lists by the same date.

Assistant Treasurer Josh Frydenberg says the proposals may represent the biggest change to the life insurance industry since the Wallis inquiry reforms in 2001.

“The Government will consider the industry’s proposals in the context of its response to the Financial System Inquiry,” he said.

“Should these reforms proceed, the Government will ensure there is appropriate monitoring of consumer outcomes – including the impact of the reforms on the cost of premiums.”

Mr Frydenberg says the Government will review the proposals if implemented in 2018.

“A proper review mechanism would be an essential component of any industry-led reform.”