ADVISER USE ONLY. LIF FAQs January Table of Contents

Transcription

1 ADVISER USE ONLY LIF FAQs January Table of Contents SUMMARY... 3 POLICY COST AND COMMISSION... 3 Q: What are OneCare s standard commission rates from 1 January?... 3 Q: What will be included in the policy cost for OneCare?... 3 Q: Will OnePath pay new business commission on CPI/Indexation increases?... 4 Q: Will OnePath pay commission on the policy premium before or after discounts have been applied?... 4 Q: What amount of commission will be paid to an Adviser if a portion of the premium is paid via a rollover? Do we pay commission before the 15% rebate?... 4 Q: What are the changes to level commission?... 5 Q: Has the Adviser Guide been updated to reflect the new commission rates?. 5 Q: How will Advisers find information about pre LIF rates?... 5 CLAWBACKS... 5 Q: Who does OnePath clawback commission from?... 5 Q: When will OnePath not apply clawbacks?... 6 Q: Will licensees, advisers, planners be notified of a clawback? What reporting will be provided on clawback?... 6 Q How are clawbacks calculated when there is a decrease part way through the year?... 7 TRANSITION RULES... 7 Q: What are the transition rules?... 7 Q: What happens to a pre LIF policy with an upfront commission structure (115/11) where there is a cancel and replace actioned after 1 January can the Adviser change the commission structure to be paid the 22% trail commission under the new hybrid?... 9 GRANDFATHERING... 9 Q: How will grandfathering work?... 9 Q: How is upfront commission calculated when there is a client-initiated increase on post LIF policies?

2 OTHER Q: What happens if the policy has no servicing adviser attached (known as an orphan ) and the policy lapses or reduces within the clawback period? Q: When will I see the new commission shapes on Illustrator? Q: What happens if my client signed a quote on pre LIF rates and the policy does not go inforce by 1 April? Q: Will distribution agreements need to change for LIF? Q: Will OnePath contact advisers/planners/licensees to notify them of clients who have policies that might be impacted by the transitional arrangements?. 12 Q: What are the dial down options and corresponding discount in premium available? Q: What changes have been made to Illustrator?

3 SUMMARY A series of reports, including a review by the Australian Securities and Investments Commission (ASIC), the industry-commissioned Trowbridge Report and the Financial System Inquiry (FSI), identified the need to better align the interests of providers of financial advice in the life insurance sector with consumers. As part of its response to the FSI, the Government announced that it would support a Life Insurance Framework (LIF) reform package put forward by industry. The reform package introduced by the Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017 (the Life Insurance Remuneration Act) removes the exemption from the ban on conflicted remuneration, and provides ASIC with the power to set caps under which commissions will be permitted to be paid. The reforms also allow for the clawback of commissions where policies lapse in the first two years. LIF reform changes are effective from 1 January. POLICY COST AND COMMISSION Q: What are OneCare s standard commission rates from 1 January? Standard commission rates apply when the life insured s cover commences at least five years before the maximum entry age and is detailed in the table below. Policy Standard Commission Rates by Type (including GST) Incepting 1st January 1st January st January 2020 Upfront* Level* Upfront Level Upfront Level Year 1 88% 30% 77% 30% 66% 30% Year 2 22% 30% 22% 30% 22% 30% Year 3 22% 30% 22% 30% 22% 30% Year 4 22% 30% 22% 30% 22% 30% Year 5+ 22% 30% 22% 30% 22% 30% *Upfront commission rates are referred to as H2ybrid # and level commission rates are referred to as L2evel # within Illustrator. # Note this is not a typo. Q: What will be included in the policy cost for OneCare? Under LIF the maximum commission that can be paid is a percentage of the policy cost. The elements that make up the policy cost are specified in the Life Insurance Remuneration Act. The table below illustrates the current situation, the permissible items under LIF and the situation post 1 January. 3

4 Items Current OneCare LIF Legislation Post 1/1/18 OneCare Annual Premium Policy Fee Life Insurance Stamp Duty* General Insurance Stamp Duty* Frequency Loading** *Treatment of stamp duty is dependent on whether it can be considered as part of the premium or not. Our view is that it can be included for life insurance stamp duty but not for general insurance stamp duty where a state-based loading is applied to the premium. **OnePath has chosen to continue its current practice to not pay on frequency loading. Q: Will OnePath pay new business commission on CPI/Indexation increases? Post 1 January commissions can only been paid on client initiated increases. A contractual obligation to increase the sum insured (such as CPI increases) is not a client initiated increase as it occurs by operation of the terms and conditions of the product. Accordingly for all policies issued from 1 January we will not be able to pay new business (first year) commission on CPI increases but we will pay renewal/trail commission. Q: Will OnePath pay commission on the policy premium before or after discounts have been applied? We will pay commission after discounts have been applied as policy cost refers to the actual premiums payable for the product for that year by the policy owner. There is no allowance within the legislation for the fact that the actual premium may have been reduced by one or more premium discounts. Q: What amount of commission will be paid to an Adviser if a portion of the premium is paid via a rollover? Do we pay commission before the 15% rebate? The policy cost for OneCare Super that is partially funded via an External Rollover is deemed to be the full premium i.e. includes the 15% Rollover rebate. Therefore in this instance we will pay commission based on the premium before the rebate is applied and not the premium amount actually rolled over by the member. 4

5 For example if the premium is $1,000 a member pays $850 via rollover and $150 via an upfront rebate OnePath would pay the adviser $880 ($1,000 * 0.88) in commission based on rates. Q: What are the changes to level commission? The level commission rate is decreasing from 32% (inclusive of GST) to 30% (inclusive of GST). The responsibility period for level commission remains unchanged and will continue to be 12 months. If a policy lapses or is cancelled we may clawback commission depending on the premium paid. Where cover is reduced, or the premium type changes from level to stepped, the clawback applies to the premium difference Commission for the level shape is based on the policy cost. Year one commission (i.e. new business commission) is payable on the first year premium and policy fee, it is not payable on indexation increases, frequency loading and stamp duty paid at general insurance rates. Renewal premium is payable as a percentage of the premium and policy cost excluding any premium on which year one commission has been paid in the same year. Q: Has the Adviser Guide been updated to reflect the new commission rates? Yes. A new adviser guide has been issued effective 1 January to incorporate the changes as a result of the LIF reforms. This is currently available via the Adviser Advantage portal. Q: How will Advisers find information about pre LIF rates? The Adviser Guide dated 19 August 2017 will remain available on OnePath s website as a reference point for pre 1 January commission rates. More information can also be found on our LIF hub CLAWBACKS Q: Who does OnePath clawback commission from? We will continue our current practice and clawback commission from the licensee of the last known servicing adviser. As is the case currently, this may be a different licensee or adviser from the initial licensee or the initial servicing adviser. 5

6 Q: When will OnePath not apply clawbacks? We will not apply clawbacks where the policy cost of the product is reduced within the first 2 years of the issue of the policy as a result of: 1. OnePath and the person to whom the product is issued agreeing that there is a reduction in risk in relation to the person insured. For example: a. Health/medical loading removed (e.g. insured s loading removed as they have reduced their BMI, blood pressure etc.); b. Past time loading has been removed (e.g. insured no longer sky dives); c. Occupation status has changed (e.g. miner changed to office worker); and d. Smoker status has changed from smoker to non-smoker. 2. We reduce the premium rates for the insured product without changing the risks covered, or the benefits available (e.g. we decide to re-price the book and the premiums decrease). 3. A rebate or discount is applied and it is reasonable to conclude that the rebate or discount was applied to induce the customer to acquire or continue to hold the product, for e.g. a. The policy owners spouse takes out cover and the policy owner therefore receives a multiple life discount. 4. The policy owner has or is being paid a benefit under the policy. 5. The person insured dies, commits an act of self-harm, or reaches the policy expiry age. 6. An administrative error has occurred e.g. where a policy is cancelled and subsequently reissued to fix a genuine error. This does not cover situations such as where an administrative error has been made, but the policy is cancelled for another reason. Q: Will licensees, advisers, planners be notified of a clawback? What reporting will be provided on clawback? Licensees, advisers and planners will be notified of all clawbacks. From 24 November 2017 we have made enhancements to our remuneration insurance payment options and download statements that are sent to Dealer Groups from ANZ Wealth (Adviser Payment Services Team) for OnePath products. All remuneration download files sent after 24 November 2017 will now include 3 additional columns within each file sent (for applicable products). The 3 additional columns are: Asset Rate (percentage of commission used to calculate amount paid against the policy) Commission Basis (shape used to make payment against the policy as described from the application form) Reason Code (the reason why a clawback or clawback exemption has occurred against the policy) 6

7 Q How are clawbacks calculated when there is a decrease part way through the year? The clawback will be calculated against the total policy cost (or reduction in the total policy cost), rather than for each component of the policy that may be cancelled, not continued or cost reduced. Example Policy cost (PC) at commencement is $100 In month 6 a rider is added and the PC increases to $120 Initial second year PC is $120 In month 14 there is a 25% reduction to the sum insured reducing the PC to $90 Calculation Clawback in month 14 is calculated using 25% of all commissions paid 25% *$100*0.88* % * $20*0.88 = $17.60 TRANSITION RULES Q: What are the transition rules? OneCare paper application transition rules as of 1 January : Application OneCare quote/application signed and dated prior to 1 January ; received by us before 5pm (AEST) 1 February, and policy in-force by 1 April. OneCare quote/application signed and dated on or after 1 January, or received by us after 5pm AEST 1 February, or not in-force by 1 April. Transition Rule The policy will be eligible to receive pre 1 January commission shapes. The policy will be ineligible to receive pre 1 January commission shapes. A new commission shape (LIF compliant) will need to be selected together with a new signed and dated quote. Post 1 January commission shapes will apply. 7

8 Examples of how these rules work in practice: Signed date Received by OnePath Policy inforce date Commission type available to adviser 31 December January 12 February Pre-LIF commission shapes 31 December January 7 April Post-LIF commission shapes 1 January 16 January 25 March Post-LIF commission shapes OneCare Express application transition rules as of 1 January : Application OneCare application submitted or pending submission before 11.59pm (AEST) 31 December 2017, and In-force by 1 April. OneCare application submitted or pending submission after 11.59pm (AEST) 31 December 2017, or not in-force by 1 April. Transition Rule The policy will be eligible to receive pre 1 January commission shapes. The policy will be ineligible to receive pre 1 January commission shapes. A new commission shape (LIF compliant) will need to be selected together with a new signed and dated quote. Post 1 January commission shapes will apply. Please note, pending submission status will revert back to an incomplete status if you are not connected to the internet and logged into Illustrator within 14 days of receiving the pending submission status. It also refers to policies in suspense. 8

9 Examples of how these rules work in practice: Submission date 31 December 2017 Policy inforce date 28 January Commission type available to adviser Pre-LIF commission shapes 31 December April Post-LIF commission shapes 1 January 5 February Post-LIF commission shapes Q: What happens to a pre LIF policy with an upfront commission structure (115/11) where there is a cancel and replace actioned after 1 January can the Adviser change the commission structure to be paid the 22% trail commission under the new hybrid? In this situation we would not pay New Business commission on the new policy and any trail commission payable would be limited to the rate of trail commission paid on the cancelled/replaced policy i.e. 11%. GRANDFATHERING Q: How will grandfathering work? Commission for policies written: Prior to 1 January, and Submitted prior to 1 January and inforce prior to 1 April will be grandfathered, including any responsibility period. Increases or additions to these policies will receive the same commission rates and responsibility period as the original policy. Customers can increase cover or add a new benefit type where this option was available under the original policy terms. See table below for examples of how this will work in practice. Policy Ownership Existing Pre LIF policy (outside of Super) Event Add a rider (e.g. TPD/Trauma) Commission shape to apply to the event Pre LIF shapes Reason Added to the same policy and is an option under the original terms of the contract. 9

10 Policy Ownership Event Increase current cover levels Add TPD Super Linked New policy for trauma cover New policy for income protection Commission shape to apply to the event Pre LIF shapes New LIF shapes (H2ybrid/L2evel) (H2ybrid/L2evel) (H2ybrid/L2evel) Reason Added to the same policy and is an option under the original terms of the contract. Ownership structure is different to the existing policy. A new policy must be created therefore post LIF shapes apply. New benefit is not added to the existing policy. apply due to a new policy being created. New benefit is not added to the existing policy. apply due to a new policy being created. However when there is a change in ownership of the pre LIF policy for example moving from OneCare to a SMSF or SuperLink arrangements or where there is the addition of a new insured life, grandfathering is not available. See table below for examples of how this will work in practice. Policy Ownership Existing Pre LIF policy (inside Super) Event Change of ownership from Super to Non Super Adding a new life insured to an existing policy Commission shape to apply to the event (H2ybrid/L2evel) (H2ybrid/L2evel) Reason apply due to a new policy being created. apply due to the new life insured being added to the policy. 10

11 Q: How is upfront commission calculated when there is a client-initiated increase on post LIF policies? Where there is action taken by the client that results in an increase in the policy cost the commission caps in the table below apply. Date the client initiated increase occurs 1 Jan 31 Dec 1 Jan Dec 2019 From 1 Jan 2020 Commission cap for the 12 months after the increase (GST inclusive) 88% of the increase in the policy cost 77% of the increase in the policy cost 66% of the increase in the policy cost Commission cap after the first 12 months (GST inclusive) 22% of the increase in the policy cost 22% of the increase in the policy cost 22% of the increase in the policy cost OTHER Q: What happens if the policy has no servicing adviser attached (known as an orphan ) and the policy lapses or reduces within the clawback period? We will clawback from the last known servicing adviser before the client became an orphan. Q: When will I see the new commission shapes on Illustrator? When you log into Illustrator for the first time after 1 January the software will automatically update (as long as you are connected to the internet). Once installation has been completed the new commission shapes (H2ybrid and L2evel) will appear. Q: What happens if my client signed a quote on pre LIF rates and the policy does not go inforce by 1 April? We require the customer to sign a new quote showing the new commission shape which is to apply (post LIF shapes available are H2ybrid or L2evel). Q: Will distribution agreements need to change for LIF? No changes to distribution agreements are required to accommodate the new obligations under LIF. 11

12 Our commission schedules have been updated to reflect the LIF requirements. An updated Financial Adviser Commission Brochure (effective 1 January ) is currently on Adviser Advantage via the link Q: Will OnePath contact advisers/planners/licensees to notify them of clients who have policies that might be impacted by the transitional arrangements? No but under the Administration banner on the application page within OneView Life advisers will have the ability to view submitted policies that are not in force on pre LIF commission rates. Additional information with the words This is a pre LIF application. Policy must be inforce by 1 April in order to be eligible to receive pre LIF commission rates will be displayed to help you identify which policies are pre LIF. Q: What are the dial down options and corresponding discount in premium available? From 1 January we will offer 2 dial down options. The following table shows some of the impacts that the dial down will have on the premium. You can dial down the commission payable with the two standard commission types. There are two dial down options which allow you to tailor your commission and premium to suit your clients. These are: Dial down option Commission reduced Premium discount A All years All years B Year one All years Under all options, the dial down percentage cannot be added or altered after the cover start date. In the case of commission splits, the dial down factor applies to both splits. The dial down rate is not applied to the policy fee, and minimum premium rules apply to the reduced premium. Option A If you choose option A, the dial-down and premium discount apply each year the cover is in force. The following table provides examples of dial-down commission for option A. 12

13 Dial down % applying to all years Upfront Level Upfront Level Upfront Level commission (H2ybrid) (L2evel) (H2ybrid) (L2evel) (H2ybrid) (L2evel) 20% 5.71% 5.45% 5.43% 5.45% 5.14% 5.45% 40% 11.43% 10.91% 10.86% 10.91% 10.29% 10.91% 60% 17.14% 16.36% 16.29% 16.36% 15.43% 16.36% 80% 22.86% 21.82% 21.71% 21.82% 20.57% 21.82% 100% 28.57% 27.27% 27.14% 27.27% 25.71% 27.27% Option B The dial-down only applies to year one commission while year 2 onward commission is preserved. However, the premium will be discounted each year while the cover is in force. The following table provides examples of dial-down commission for option B. Dial down % applying to all years Upfront Level Upfront Level Upfront Level commission (H2ybrid) (L2evel) (H2ybrid) (L2evel) (H2ybrid) (L2evel) 20% 2.29% 0.78% 2% 0.78% 1.71% 0.78% 40% 4.57% 1.56% 4% 1.56% 3.43% 1.56% 60% 6.86% 2.34% 6% 2.34% 5.14% 2.34% 80% 9.14% 3.12% 8% 3.12% 6.86% 3.12% 100% 11.43% 3.9% 10% 3.90% 8.57% 3.90% Q: What changes have been made to Illustrator? To accommodate the new commission rates 2 new codes have been created in Illustrator. Upfront commission rates refers to H2ybrid # commission shape in Illustrator. Level commission rates refers to L2evel # commission shape in Illustrator. # Note this is not a typo. Q: What changes have been made to Fee for Service? Fee for Service previously provided a 29% discount but now it is 28.57% in line with the new commission levels under LIF. If you have any further questions regarding the FAQs, please contact the Retail Risk Product Team by ing risk.product@anz.com 13