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The Royal Commission’s final report has endorsed much of the existing legislative and reform proposals for the insurance industry.

There are, however, some recommendations that were not expected. A complete ban on the unsolicited sale of insurance and a new duty of disclosure for consumer insurance will pose structural challenges for retail insurers.

While the grandfathering of life insurance commissions under the LIF reforms looks set to end, the industry will be relieved to see that general insurance commissions will remain for at least the next three years until a government review takes place in 2022.

Policy recommendations

The Royal Commission has made 12 specific recommendations for insurance (not including those for group life insurance that touch on superannuation) and these are summarised below. Many, but not all of them, were widely anticipated.

Expected Unexpected


  • The recommended repeal of the FOFA grandfathering provisions appears to extend to cover grandfathered life insurance commissions.
  • The permitted commission caps for life insurance will continue and be reviewed as planned by ASIC in 2021.  It is recommended that these caps be reduced to zero over time unless there is a clear justification for retaining them.
  • Commissions paid to motor dealers for add-on insurance sales are to be subject to a cap to be determined and imposed by ASIC.
  • General insurance commissions are to remain until at least 2022, when a government review in consultation with ASIC should determine whether the existing exemptions for general insurance and consumer credit insurance (CCI) product commissions should be removed.


  • Cold-call direct sales of insurance are to be banned.
  • The anti-hawking provisions are to be extended to cover unsolicited offers of all types of insurance.

CCI and add-on insurance

  • A deferred sales model for CCI and add-on insurance should be introduced as soon as reasonably practicable (except for policies of comprehensive motor insurance).

Disclosure & remedies for non-disclosure

  • The existing duty of disclosure for consumer insurance is to be replaced by a new duty to take reasonable care not to make a misrepresentation (following the position adopted in the UK in 2012).
  • The “avoidance” regime under s29(3) of the Insurance Contracts Act 1984 (Cth) is to be addressed by restoring the law to its pre-2013 position so that avoidance for an innocent non-disclosure is only possible where a life policy would not have been issued on any terms.

Unfair contract terms

  • The UCT regime for insurance contracts proposed by Treasury should be adopted into the ASIC Act. 
  • Terms to be carved out of the UCT regime that define the main subject matter of the contract should be limited to descriptions of the insured risk (and not the broader scope contended for by the insurance industry).
  • The duty of utmost good faith should operate independently of the UCT regime.


AFS licensing

  • Claims handling is to be treated as a financial service so that the general conduct obligations in s912A of the Corporations Act 2001 (Cth) will apply to regulate the conduct and settlement of claims.
  • Funeral expenses policies are to be treated as a financial product for the first time, and so require an AFS licence to be held by product issuers and also attract the s912A conduct obligations.
  • AFSL holders should be required by s912A to co-operate with the Australian Financial Complaints Authority in its resolution of disputes.

Industry codes

  • The life and general insurance industry codes will move to a co-regulatory approach.
  • Breaches of the terms that govern an insurer's relationship with an insured under the codes are to be enforceable as a breach of the law, with sanctions for non-compliance. ASIC should approve these industry codes.


  • The Banking Executive Accountability Regime should be expanded to all APRA regulated insurers, starting with the largest insurers.

The big picture

The Royal Commission has endorsed the current legislative plans from Treasury for the introduction of product design and distribution obligations, the proposed model law for the extension of the UCT regime to insurance, ASIC’s proposals for a deferred sales model for CCI and add-on insurance and ASIC’s planned co-regulatory approach for industry codes.

The insurance industry has avoided some of the more extreme outcomes that could have played out. For example, the Royal Commission did not adopt ASIC’s submission to it that:

  • general insurance commissions should be banned;
  • the sale of accidental death, tyre and rim and certain types of TPD insurance should be banned outright;
  • the standard cover regime under s35(2) ICA should be strengthened; and
  • the regular updating of medical definitions should apply to legacy as well as on-sale life products.

Insights and trends

Many of the recommendations have been anticipated by the insurance industry, which has moved in recent times to adjust its sales and distribution models and practices. For example, many insurers no longer produce CCI insurance, and life and general insurers have moved to further develop their industry codes to address known problematic issues.

The Royal Commission’s Final Report will provide certainty for the process of further structural change ahead of the legislative implementation of the recommended reform proposals.

So what does this mean for the industry?

Both major political parties have accepted the Royal Commission’s recommendations for the insurance industry, as has the Insurance Council of Australia. For its part, the Financial Services Council has welcomed the final report but is currently considering the recommendations affecting the life industry.

Insurers and their intermediaries will want to carefully consider the structuring of existing arrangements as legislation is prepared that touches on them to ensure they are not only compliant but that their commercial objectives can be realised and optimised. In particular:

  1. ban on grandfathered life commissions – insurers will need to consider how their contractual arrangements will be affected by a ban which will include issues such as:
    • What contractual liabilities to counterparties may arise;
    • How legitimate service arrangements and the fees payable for service fees/operating expenses can continue to operate; and
    • Reliance on existing carve-outs for conflicted remuneration.
  1. hawking – the proposed ban on the making of unsolicited offers of insurance will require product distributors to reconsider their sales models and practices, including their distribution agreements.
  2. claims handling - cedants and reinsurers should review how the claims authorities under their reinsurance arrangements will be affected by the regulation of claims handling as a financial service. For example, insurers will need to consider to extent to which the new statutory requirements will permit them to cede contractual claims settlement rights to reinsurers who are not bound by the same obligations.

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Michael Vrisakis

Partner, Sydney

Michael Vrisakis