Representation

WE ARE YOUR VOICE!

There is a lot happening at the present time. The following are the key developments all insurance brokers need to be aware of. As noted in the CEO column, now is the time for all insurance brokers to become familiar with Royal Commission and other reforms which take effect this year.

COVID-19

The Insurance Council of Australia (ICA) has sought leave to appeal to the High Court of Australia in relation to the business interruption test case that was undertaken in the Supreme Court of NSW. The ICA has also commenced a second test case which will examine a number of policy wordings and has provided an update on business interruption matters generally, which is available here: insurancecouncil.com.au/ issues-submissions/bi-test-case

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.

ACCC NORTHERN AUSTRALIA INSURANCE INQUIRY

The 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 and is finalising a formal response to the ACCC report.

FEDERAL

Royal Commission Reforms

Legislation implementing several 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:

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.

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 get a claims handling endorsement on their AFS licence or become an authorised representative of the insurer. NIBA has provided detailed information to members in relation to these provisions.

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. 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.

NIBA has been liaising with members to determine areas where exemptions should be given from these reforms. 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.

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.

Design and Distribution Legislation

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.

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.

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.

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/currentinquiries/insurance-inquiry

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 provided a response to ASIC on behalf of members.

NEW SOUTH WALES

NIBA has launched an ESL Hub on the 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.

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 has met with Counsel advising Justice Robert McDougall, who is conducting the review.

NSW icare Home Warranty Insurance Provider Tender

NSW icare has conducted a tender for the provision of distribution services for the home warranty insurance scheme. The tender outcome saw a reduction in the number of approved distributors. NIBA has expressed strong concern to icare in relation to several aspects of the tender, and at the time of writing was arranging to meet with icare senior executives to discuss the matter.

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 ICA has released the new 2020 General Insurance Code of Practice, which is available at: codeofpractice.com.au

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. 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.

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