9 minute read
Representation
WE ARE YOUR VOICE!
2021 is off to a roaring start, with a flurry of activity scheduled for the coming months. The following are the key developments all members need to be aware of.
COVID-19 & BUSINESS INTERRUPTION
The Insurance Council of Australia (ICA) has sought leave to appeal to the High Court of Australia in relation to the Business Interruption (BI) test case that was undertaken in the Supreme Court of NSW.
The ICA has provided an update on Business Interruption matters generally, which is available here: insurancecouncil. com.au/issues-submissions/bi-test-case
The Financial Conduct Authority ran a similar test case seeking clarification of the pandemic exclusion clauses in a number of London market policies. The Supreme Court unanimously ruled in favour of policyholders stating that the vast majority of policyholders with nonproperty damage BI cover could make valid claims for their business interruption losses caused by the UK Government’s response to the COVID-19 pandemic.
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. It 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 currently preparing a formal response to the report, which will be provided to Treasury for consideration.
FEDERAL
Royal Commission Reforms
Legislation implementing a number of Royal Commission recommendations passed the Federal Parliament prior to Christmas and will take effect over the course of 2021. The key provisions of interest to insurance brokers are as follows:
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, such as risk management advice.
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.
It is important to note that any insurance broker who has authority to make decisions in relation to claims must discuss the matter with the relevant insurance company and must take steps to either obtain a claims handling endorsement on their AFS licence or become an authorised representative of the insurer.
Reference Checking and Information
Sharing: new provisions require AFS licence holders 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 product 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 liaised with members to determine areas where exemptions should be given from these reforms and provided this advice in a submission to Treasury.
There are a number of areas where insurance has been provided in conjunction with another sale, and the immediate supply of insurance cover provides genuine protection for the consumer.
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.
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 delayed until October 2021. While this is welcome, there is no room for complacency: 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. We are also aware that a number of insurers have contacted members directly to discuss these matters. It would be unfortunate if insurers were to take differing approaches to this issue.
It is crucial that broker 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, 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. Firms will most likely need to obtain legal assistance for this process, in order to ensure they are meeting the new legislative obligations.
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. 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 obtain legal support for this purpose.
Other reforms
In addition to the above, a number of other reforms were passed by parliament that have the potential to impact a small number of members including insurer avoidance of life insurance contracts and caps on commissions for products sold in conjunction with the sale or long-term lease of motor vehicles. Brokers that operate in these areas are advised to familiarise themselves with the upcoming changes.
ASIC
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.
Emergency Services Levies
We continue to encourage members with clients in New South Wales and Tasmania, where emergency services levies add considerably to the cost of property insurance to discuss the matter with their clients and if appropriate, contact their local state member of parliament.
To assist brokers with these conversations, NIBA has provided a fact sheet, template letter and MP contact database on the Emergency Services Funding Hub available on the NIBA website.
Review of NSW 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 has met with Counsel advising Justice Robert McDougall, who is conducting the review.
General Insurance Code of Practice
The full General Insurance Code of Practice will take effect from July 2021. Provisions relating to family violence and vulnerable persons and distressed clients were introduced last year.
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, 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: codeofpractice.com.au.
To prepare for ASIC’s upcoming review of the intermediated insurance industry and to support the release of the Deloitte report on the economic value of insurance broking, NIBA has been conducting briefings with state and federal departments of Finance, Small business and Treasury as well as meeting key stakeholders within the consumer and business space to help educate them on the role of brokers and the importance of maintaining the current broker remuneration model.
Insurance Broker Code of Practice
Last month, NIBA released a consultation paper inviting feedback and submissions as part of the review of the Insurance Brokers Code of Practice. The independent reviewer is closely engaged with consumer groups, insurers and other stakeholders to ensure that the broker code remains industry leading and positions brokers as trusted advisors. A copy of the consultation paper and draft code can be found at: niba.com.au/html/niba-cop-review.cfm
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
