13 minute read
Representation
WE ARE YOUR VOICE!
Quite a lot has happened since the December comments were written. The following is an overview of some of the things NIBA has been examining on behalf of Members.
COVID-19
The Insurance Council of Australia (ICA), in consultation with Australian Financial Complaints Authority (AFCA) and Australian Securities and Investment Commission (ASIC), took proceedings in the Supreme Court of NSW seeking clarification of issues relating to the interpretation of certain pandemic exclusion clauses which refer to the now repealed Quarantine Act.
The proceedings went straight to the NSW Court of Appeal, where five senior Judges gave a unanimous decision in favour of policyholders. The Court found that clauses in policies that purport to exclude pandemic claims by reference to the Quarantine Act have no effect. The ICA subsequently announced its intention to seek special leave to appeal to the High Court of Australia.
The financial services regulator in the United Kingdom ran a test case in the UK courts seeking clarification of the pandemic exclusion clauses in a number of London market policies. An initial decision has been handed down by the court, and both the regulator and a number of insurers have lodged appeals against that decision. The appeals have been heard, and at the time of writing we await the outcome of the appeal.
NIBA continues to provide information to members in relation to government support for business, and the continuation of restrictions on community activity for health protection reasons. Those thinking of crossing state/ territory borders should consult the relevant state/territory websites for the latest information on any border restrictions that might be in place.
We also commend the work of the ICA, which has been working with relevant state governments to ensure insurance industry personnel can travel across borders to assist with the recovery of communities following major weather events.
ACCC Northern Australia Insurance Inquiry
The Australian Competition and Consumer Commission (ACCC) has released its third and final report under the Northern Australia Insurance Inquiry. The report makes a number of recommendations, most of which are likely to have limited if any impact on the availability and affordability of home, contents and strata insurance in northern Australia.
The final report repeated an earlier recommendation that insurance broker commissions be abolished. NIBA has spoken with the Federal Government in relation to this issue, and understands the government remains committed to the 2022 review of remuneration arrangements for general insurance products and services. NIBA is preparing for that review.
FEDERAL
Royal Commission Reforms
Legislation implementing a number of Royal Commission recommendations passed the Federal Parliament prior to Christmas and will take effect during the course of 2021. The key provisions of interest to insurance brokers are as follows:
Industry Codes of Practice: new provisions set out arrangements for ASIC to approve Codes of Practice, and to specify Code provisions to be legally enforceable. The Insurance Brokers Code of Practice (the Code) is currently under review, and NIBA will give further consideration in due course to the new Code of Practice laws, and how they might impact on the new Code.
Use of the terms “insurance” and
“insurer”: there are now stronger provisions which prevent use of the word “insurance” for products and services that are not insurance. Care will need to be taken to ensure this word is not used in relation to the provision of non-insurance services, such as risk management advice. Also, do not call yourself an insurer if you are not APRA-authorised or are otherwise able to act as an insurer in Australia.
Insurer avoidance of life insurance
contracts: changes affect the ability of a life insurer to avoid contracts of life insurance in certain circumstances within three years of entering into the contract. Life risk brokers need to become familiar with this provision.
Caps on commissions for products sold in conjunction with the sale or long term lease of motor vehicles:
new provisions give ASIC the power to set caps for commissions paid in relation to a number of add-on risk products including tyre and rim insurance, mechanical breakdown insurance, consumer credit insurance and some others. Those involved in this area will need to monitor ASIC activity in this area.
Claims handling and settling services:
these reforms make insurance claims handling and settling services a financial service, and therefore they must operate under a financial services licence and be subject to the requirements of Chapter 7 of the Corporations Act. NIBA will provide detailed information to members in relation to these provisions shortly.
Reference checking and information
sharing: new provisions require an AFS licence holder to comply with new reference checking and information
sharing protocols to be released by ASIC. These requirements will apply to authorised representatives of life risk brokers, and do not apply to representatives giving advice only in relation to general insurance products. The new rules take effect on 1 October 2021.
Breach reporting and remediation:
detailed new laws in relation to breach reporting and remediation take effect on 1 October 2021. All member principals will need to thoroughly review their breach monitoring and reporting processes and procedures to take account of the new laws. NIBA will provide detailed information on this shortly.
Hawking of financial products: complex new provisions relating to the “hawking” of insurance products will take effect on 5 October 2021. The provisions do not apply when an insurance broker is giving personal advice to a retail client, but they will apply to insurance brokers operating under a general advice model. Essentially, the provisions will prevent the unsolicited marketing and sale of financial products to retail clients. The definitions and concepts are difficult and complex, and NIBA will provide further information to members in relation to these changes.
Deferred sales model for add-on
insurance products: these reforms essentially ban the sale of an insurance product in conjunction with some other products or service. Examples include insurance sold in conjunction with the rental of a motor vehicle, travel insurance purchased after the purchase of a travel product, and so on. The legislation introduces a complex array of obligations which defer the insurance transaction for a period of four days. The reforms do not apply to comprehensive motor insurance, or products recommended by financial advisers in a very limited personal advice situation. NIBA will provide detailed information to members in relation to how the reforms will need to be implemented. The reforms take effect on 5 October 2021.
Duty to take reasonable care not
to make a misrepresentation: these reforms relate to a newly defined category of “consumer insurance contracts”. They apply to insurance obtained wholly or predominantly for the personal, domestic or household purposes of the insured. Where the new definition applies, the insured only has a duty to take reasonable care not to make a misrepresentation to the insurer before entering the consumer insurance contract.
The changes relate to insurance contracts entered into on or after 5 October 2021. For non-consumer insurance contracts, the existing provisions in sections 21 and 22 of the Insurance Contracts Act (duty of disclosure obligations and misrepresentation provisions) apply. NIBA will provide more information on these reforms to members.
Small Business Ombudsman Insurance Inquiry
During 2020 the Australian Small Business and Family Enterprise Ombudsman undertook an inquiry into the availability and affordability of general insurance cover for SME businesses. Included in the inquiry is the role of brokers in getting the right coverage.
NIBA provided a detailed submission to the Inquiry and met with the Small Business Ombudsman and her officials to discuss the role of insurance brokers, and current market conditions in relation to the supply and cost of general insurance cover. It was pleasing to hear the Ombudsman has a good understanding of the role of insurance brokers (as a previous small business owner herself).
The Small Business Ombudsman issued a report and recommendations on 9 December 2020. NIBA will provide a detailed response to the report to the Federal Government.
More information about the Insurance Inquiry is available at: asbfeo.gov.au/ current-inquiries/insurance-inquiry
Design and Distribution Legislation
As previously advised, legislation to implement new obligations on insurers and distributors of insurance products has been passed by the Federal Parliament. ASIC has indicated that commencement of the new rules has been put back to October 2021. This is welcome, but there is no room for complacency here: the new rules will apply to every product that currently has a PDS attached to it.
NIBA is continuing to work with the Insurance Council of Australia to develop an understanding of how the legislation will work. This has been a slow process, but there has been some progress. We are also aware that a number of insurers are making contact with brokers to discuss these matters directly. It will be unfortunate if insurers take a range of approaches to these matters.
The crucial thing for insurance brokers to consider at the present time relates to those firms who use “broker wordings”, or their own schemes - where the broker has been involved in the design of the policy and the development of the cover that is provided. In these cases, the broker will need to work closely with the insurer/ underwriter to determine how the design and distribution obligations will operate in respect of those policies, who will be responsible for the preparation of the target market determination, and how the product review obligations will be implemented. You will most likely need to get legal support for this process, in order to ensure you are meeting the legislative obligations.
We continue to urge all members with broker wordings to look closely into these matters now.
Unfair Contracts Terms Legislation
As previously advised, legislation which will apply existing unfair contracts terms legislation to insurance contracts has been approved by the Federal Parliament.
These reforms were recommended by the Royal Commission and by the ACCC Interim Report on Insurance Issues in Northern Australia.
It is important to note that implementation of this legislation has NOT been deferred by the Federal Government. The reforms will take effect in early April 2021. By that time all retail policies will need to be reviewed to identify and remove any potential unfair terms.
As noted above in relation to design and distribution obligations, where brokers have policies with their own wordings and cover, they will need to review the terms of cover and the wording of the policies to determine whether the policies might be caught by the unfair contract terms legislation. This should be done in collaboration with the relevant underwriter. We also note that these are technical legal questions, and we strongly urge brokers to get legal support for this purpose.
ASIC has published revised information sheets setting out their
expectations in relation to Unfair Contract Terms legislation. NIBA provided commentary on these matters to members in October 2020.
ASIC
Internal Complaints and Disputes
ASIC recently issued Regulatory Guide 271 – Internal Dispute Resolution. It is a condition of every AFS licence that the licence holder have a system for managing and resolving complaints and disputes, preferably before they are elevated to AFCA.
RG 271 reviews and updates ASIC’s requirements in this area. The new requirements take effect on 5 October 2021.
ASIC has also issued a discussion paper in relation to the collection and reporting of data regarding internal complaints and disputes. NIBA has been examining the discussion paper and will provide a submission to ASIC on behalf of members.
APRA
We again remind members that the person in every insurance broking firm responsible for providing data to APRA must review the new procedures set out on their web site: apra.gov.au/apra-replacing-d2a
Every insurance broking firm should by now have made arrangements for a key manager to have myGovID credentials and to appoint a Relationhship Authorisation Manager, in order to be able to continue to provide relevant reports to APRA.
Information about myGovID is available at: ato.gov.au/General/Gen/myGovID/
Please note that the existing AUSkey arrangements were due to expire on 31 March 2020. New arrangements should have been in place prior to that date.
We again strongly urge all members to become familiar with the new requirements, and start to develop procedures to implement the new system.
NEW SOUTH WALES
NIBA has launched an ESL Hub on the main NIBA website to provide information and resources to members with clients in New South Wales and Tasmania, where emergency services levies remain and add considerably to the cost of property insurance in those states.
We urge all insurance brokers with clients in these states to discuss the matter with their clients, using the ESL fact sheet available at the ESL Hub.
More broadly, our goal has been to point out the unfair and inequitable impact of the emergency services levy on insurance premiums, and the resulting impact on underinsurance and non-insurance. It has been reported that 27 per cent of the houses totally destroyed by the summer fires did not have insurance cover. This constitutes a massive loss for the people involved, and for their communities. NIBA will be giving evidence to a Senate Inquiry into the handling of the bushfires in early July 2020.
Major review of workers compensation
The NSW Government has launched a major review of workers compensation, including the operation and management of icare, and the operation of the NSW workers compensation scheme more broadly. NIBA has provided a submission to this review, and is arranging a meeting with Justice Robert McDougall, who is conducting the review.
TASMANIA
NIBA has spoken with the Tasmanian Government about the unfair burden imposed by the Fire Services Levy in that State. The Government has been conducting a review of fire services funding, and NIBA looks forward to responding to the report and recommendations when released.
General Insurance Code of Practice
The Insurance Council of Australia has released the new 2020 General Insurance Code of Practice, which is available at: codeofpractice.com.au
The new General Insurance Code was formally launched in February 2020. Code subscribers were required to implement a family violence policy by 1 July 2020, and the ICA announced that insurers were aiming to implement vulnerable persons and distressed client provisions from 1 July 2020. The remainder of the new Code will formally take effect on 1 July 2021.
Any insurance broker operating under a binder on behalf of insurers will need to undertake training on the new Code of Practice and to implement procedures to adopt the General Insurance Code in respect of those operations. This is particularly important for the new Code provisions relating to vulnerable persons and clients in distress.
NIBA also believes that any insurance broker acting on behalf of their clients should have a good general knowledge of the insurer Code of Practice, especially the provisions regarding family violence and vulnerable customers.
The new General Insurance Code also contains new provisions dealing with insurance and mental health, disclosure of information and the sale of insurance products through motor dealers.
A summary of key features of the new General Insurance Code of Practice is available at: insurancecouncil.com.au/ assets/media_release/2019/311019%20 Key%20features%20of%20the%20 new%20General%20Insurance%20 Code%20of%20Practice.pdf
Insurance Brokers Code of Practice
The review of the Insurance Brokers Code of Practice is continuing. The NIBA Board of Directors has largely completed detailed discussions in relation to the content of a new Code of Practice for insurance brokers.
NIBA is now seeking the views of members on the operation of the Code of Practice, and the future development of the Code, taking account of what is happening in other areas of financial services, the recommendations of the Royal Commission, and the work being done by the Insurance Council of Australia in its review of the General Insurance Code of Practice. More information on page 16 and 17.
CONTACT NIBA
As always, brokers who have questions about these or any other government or regulatory matters should feel free to contact NIBA CEO Dallas Booth at: dbooth@niba.com.au
