The two main adviser bodies have given qualified support for the Financial Services Council’s (FSC) new life insurance remuneration framework.

In a bid to tackle the issue of churning in the industry, the FSC is proposing a tiered commission clawback if a life policy lapses within three years of commencement.

If a policy lapses in the first year, the insurer will claw back 100% of the commission. This will drop to 75% in the second year and 50% in the third year.

Association of Financial Advisers (AFA) CEO Richard Klipin told insuranceNEWS.com.au today the move “is a positive first step”. But he says the AFA does not support all the recommendations in the proposal.

“It is reasonable to expect a policy to last more than three years,” he said. “But clients’ circumstances change, leading to lapses, while insurers issue better products that can also force changes.

“An adviser will need to comply with the best interests duty throughout this process.”

Financial Planning Association CEO Mark Rantall told insuranceNEWS.com.au the association has given qualified approval to the proposal.

“We are interested to see how this will benefit consumers,” he said. “We did not support the FSC’s initial proposal, but this is a step forward. There are some details we need to understand more clearly.”

FSC CEO John Brogden says the council’s life insurance members have supported the framework and it will become effective from July 1 next year.

“This framework has changed substantially from the original proposal released in March following four months of consultation with our life insurance and financial advice network members, the AFA, the FPA and the regulators,” he said.

“It will help to address Australia’s chronic underinsurance problem by placing downward pressure on premiums making life insurance more affordable.”

The FSC will also establish a joint working group to review a range of life insurance industry practices.

This includes greater investment in technology to deliver more efficient underwriting processes, the extension of product upgrades to existing policyholders and continuing to work with the advice industry to improve advisers’ skills and capabilities.

The AFA wants the group to consider the issue of underinsurance as well as the industry’s investment in boosting adviser skills.

“The life insurance industry needs to make it easier to access its products and services,” Mr Klipin said.

“Many of these initiatives are within reach and will require a clear focus.”

The AFA wants technology enhancements and automatic upgrades to the latest product version; systems to allow online increases of existing business; forward underwriting for personal circumstances; and tailored personal statements that allow for future increases.

Both associations have said they will continue to talk to the FSC about the framework.