PROFESSIONALISM / Regulatory Reforms
POST OCTOBER 2021 REGULATORY REFORMS REMINDER FOR INSURANCE BROKERS
BY MARK RADFORD
Principal, Radford Lawyers
From October 2021, a number of significant reforms come into effect that members need to take reasonable steps to comply with. NIBA has released various guidance to assist members in preparing for these changes.
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nfortunately, various aspects of these laws are yet to be finalised by the Australian Government. ASIC Guidance has not been released in final form as of the date this article has been prepared, which is not ideal. Despite the above, the Government has chosen not to delay implementation. ASIC has issued a media release recognising that, “There will be a period of transition as industry finalises the implementation of additional compliance measures, and ASIC will take a reasonable approach in the early stages of these reforms, provided industry participants are using their best efforts to comply.” The October changes relevant to general insurance and intermediaries are:
New breach reporting obligations – Corporations Act – 1 October 2021
The new breach reporting obligations change the existing licensee breach reporting regime and create “reportable situations” that will either be automatically reportable to ASIC, or only reportable if there is a breach of a new defined concept of ‘core obligation’ that is ‘significant’. Breaches of a core obligation will be deemed significant in some cases and in other cases need to be considered against a significance test. Licensees need to update breach reporting documents and procedures to comply with these new onerous obligations. ASIC Guidance has only just been released, asic. gov.au/about-asic/news-centre/find-amedia-release/2021-releases/21-235mr-asicpublishes-guidance-on-breach-reporting/
New deferred sales model (DSM) for add-on insurance – ASIC Act – 5 October 2021
This reform applies a new DSM for defined ‘add-on insurance products’ i.e. essentially
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insurance sold to consumers, as defined in the Act, in connection with a principal product or service that covers risks that relate to that product or service (subject to certain carve-outs – only recently released in the Regulations – legislation.gov.au/ Details/F2021L01279). It effectively imposes on the principal product or service provider, or relevant third parties wishing to offer and sell the add-on insurance, an obligation to provide an ASIC prescribed notice, and a clear four-day waiting period afterwards before a sale can be made. It also applies other restrictions on conduct and forms of contact, by such persons prior to that time. To this extent, the DSM operates the anti-hawking obligations discussed below won’t apply. Identify what products may be caught and consider the impact on current models and changes that may be required. For further ASIC Guidance see RG 275.
Anti-hawking changes – Corporations Act – 5 October 2021
The reform changes existing s992A to provide for a new broader anti-hawking regime in relation to retail clients. It provides that a person must not offer a financial product for issue or sale to a retail client, or invite the client to ask or apply for a financial product or to purchase a
financial product, if the offer, request or invitation is made in the course of, or because of, an unsolicited contact with the client, unless one of the exceptions apply. Consider where you might contact customers as a result of unsolicited contact, based on the new definition, and update procedures and documents to comply. The ASIC Guidance for this reform has now been released in its final form: asic.gov.au/about-asic/news-centre/find-amedia-release/2021-releases/21-257mr-asicpublishes-guidance-on-hawking-reforms/
New design and distribution obligations (DDO) changes – Corporations Act – 5 October 2021
The DDO changes introduce principlesbased design and distribution obligations on insurers and other regulated persons (e.g. agents of insurers and insurance brokers, and other distributors) in relation to retail client insurance business. These obligations are intended to help retail clients obtain appropriate financial products by requiring issuers and distributors to take a more consumer-centric approach. Insurers principally need to create a target market determination (TMD) which identifies its target market and includes other prescribed content
“There will be a period of transition as industry finalises the implementation of additional compliance measures. ASIC will take a reasonable approach in the early stages of these reforms provided industry participants are using their best efforts to comply”
