Authorities are warning that life insurance changes will cost financial planners as much as $250 million a year in lost fees and commissions.

The proposed reforms come from the financial planning industry, specifically the Association of Financial Advisers, the Financial Planning Association and the Financial Services Council.

The three groups are leading a self-regulatory push to avoid stricter government regulation in response to scandals over bad advice.

The reforms include a plan to cap commissions on life insurance policies at 60 per cent for the first year, down from the current 120 per cent.

“Trailing” commissions would be capped at 20 per cent of a premium.

The proposal also covers “clawback” provisions on insurance policies.

The shakeup would see a client receive 100 per cent of the commissions paid out from a policy that is cancelled in the first year, and 60 and 30 per cent in the following two years.

Assistant Treasurer Josh Frydenberg welcomed the attempt at self-regulation, and said he did not believe current insurance clients have been unfairly targeted with high premiums.

“They haven't been ripped off, but I don't think that the upfront commission model has been in their best interests and that is why we're moving away from that,” he said.

“Effectively the reforms will see a halving of the upfront commissions from 120 per cent of the premiums down to 60 per cent by 2018.

“It will have a greater role for ASIC (the Australian Securities and Investments Commission) in ensuring better consumer outcomes. There'll be more competition and there'll also be greater product choice.”

Industry Super Australia director of public affairs Matt Linden told that ABC that commissions need to be banned entirely.

“This is the only part of the industry now where commissions are allowed to be paid on financial products,” he observed.

“They can give rise to perverse incentives for advisors and it may incentivise advisors to supersize the amount of a life insurance that a consumer might need.

“The only sustainable solution here is for commissions to be phased out and for it to be replaced with fee-for-service advice.”