The October blitz begins Of all the regulatory changes starting this month, new rules governing the design and distribution of products will have the most significant impact By Bernice Han
T
his month regulatory reforms have picked up the pace following a pause to allow the general insurance industry and wider financial services sector to focus on pandemic challenges. No more. Now the industry must include regulatory reform among the imperative issues it’s already facing – climate change impacts, climbing claims and financial woes, to name a few. Relevant to the general insurance industry: • The commencement on October 1 of strengthened breach reporting rules, followed four days later by the introduction of product design and distribution obligations (DDO) laws, hawking prohibitions, a deferred sales model for add-on insurance and a new disclosure duty for consumer contracts. • New standards and guidelines relating to complaints handling and internal dispute resolution processes started on October 5, after the release last year of a new regulatory guide, RG 271, from the Australian Securities and Investments Commission (ASIC). The raft of measures stemming from the Hayne royal commission also reflects work already underway before the government-appointed inquiry into financial services sector misconduct proceeded in 2018 and concluded with a final report in February the following year. The reforms usher in an era of more stringent governance to protect consumers, carrying harsher
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penalties for non-compliance. Significant resources have been put in by the industry in preparation for the changes. These include reviewing underwriting criteria, overhauling back-end support systems and staff retraining. The Insurance Council of Australia (ICA) has been working closely with its members to support them in navigating the “once-in-a-generation regulatory reforms”, the most significant of which commence early this month, a spokesman told Insurance News. “The aim has been to support members’ understanding of the reforms and the expectations set by regulators.” In terms of industry-wide impact, insurance experts and lawyers agree the DDO regime presents the biggest shake-up for insurers, brokers and other intermediaries. Recommended by the 2014 Financial System Inquiry and supported by the Hayne royal commission, it requires insurers and distribution partners to ensure products are designed to meet the needs of consumers and are delivered to the consumers for whom they are intended. The DDO rules apply for the entire life cycle of a product. “This is not a set-and-forget duty,” Finity Principal Raj Kanhai told Insurance News. “It’s ongoing monitoring and compliance obligations.”
Two important new acronyms: DDO: Design and Distribution Obligations require insurers and distribution partners to ensure products are designed to meet the needs of consumers and are delivered to the consumers they are intended for. TMD: Target Market Determination. A document that must accompany every product setting out its target market, distribution conditions, and information related to review and monitoring.
