Advisers will avoid clawback provisions if a life insurance policy is sold on a level commission or with a fee for service.

Introducing legislation limiting commissions and enforcing the clawback period, Financial Services Minister Kelly O’Dwyer said such payment methods are unlikely to encourage policy churn.

The legislation will not set commission levels and clawback periods – that is up to the Australian Securities and Investments Commission (ASIC).

“This bill removes the exemption from the ban on conflicted remuneration for advice on life insurance products and provides ASIC with the power to determine acceptable benefits payable for these products,” Ms O’Dwyer told Parliament.

“Under this approach, advisers can receive commissions as long as the requirements set by ASIC in its legislative instrument are met.”

Ms O’Dwyer confirmed a proposed cut from 130% to 60% for upfront commissions is likely from January 1 2020. Trail commissions will be capped at 20% from January 1 2018.

“These remuneration arrangements will include clawback arrangements provisions under which part or all of the upfront commission will need to be repaid if the policy is cancelled or the premium reduces in the first two years. The bill gives ASIC the power to create an instrument that covers acceptable clawback amounts.”

The minister has left the door open for ASIC to impose lower commissions or different clawback periods, although the original three-year period has been scaled back.

“The Government acknowledges the final form of the instrument is a matter for ASIC as the independent regulator,” she said.

ASIC’s review of the life insurance advice industry will take place in 2021. If churn is not reduced, level commissions will be introduced.