The aftershocks from David Murray’s Financial Systems Inquiry are still being felt. The latest dodgy financial sector to feel the blowtorch is the life insurance industry – a sector dogged by poor advice, high commissions, and often outright fraud.

Acting on advice from Mr Murray the federal government proposes major changes to the industry. First and foremost will be the cut of usurious upfront commissions, from a scandalous 120 per cent of premiums to a (comparatively) modest 60 per cent by 2018.

Ongoing commissions will fall to 20 per cent of the premium from the beginning of 2016.

The life insurance industry has sought to mitigate government intervention by proposing changes of its own. Assistant Treasurer Josh Frydenberg said these proposals will be considered in the context of the overall inquiry. Treasurer Joe Hockey believed a full governmental response to the inquiry was still months away.

But the life insurance industry has been put on notice.

The Australian Securities and Investment Commission (ASIC) has also weighed into the fray, recommending several measures of its own to improve customer outcomes.

Sally Loane, head of the Financial Services Council, said life insurance was necessary to a well-functioning and self-reliant community.

“Bringing the life and advice industries together to undergo an open and independent process in search of reform solutions – including changes in the culture of the industry as a whole – was a ground breaking approach,” said Ms Loane in statement today.

Gerard Brody, from Chief Executive of the Consumer Action Law Centre, said the changes didn’t go far enough. “While life insurance advisers are still getting commissions, regardless of the size of those commissions, advisers will not be truly independent.

“This model perpetuates disincentives for advisers to provide strategic advice, or advise consumers to take out group life cover through superannuation. In a commission-based system, an adviser must work for free when giving that kind of advice.”

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