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Post-October 2021 Regulatory reforms reminder for insurance brokers
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.
BY MARK RADFORD
Principal, Radford Lawyers
Unfortunately, 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:
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 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.
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
relevant to distribution conditions, reporting and review, and ensure the TMD is appropriate, and if not, address this. Other regulated persons are principally required to take reasonable steps to act consistently with the TMD, keep records and report certain matters to the insurer, and cease distribution where a TMD is not appropriate. For ASIC Guidance, see ASIC RG 274 and Information Sheet 264 FAQs: Design and distribution obligations for advice licensees and financial advisers.
The government still intends to make a number of amendments to the DDO to clarify the law, to ensure a consistent application of the law, so that the regime remains fit-for-purpose particularly regarding complaint reporting. Treasury will consult on these changes with stakeholders in due course. The proposed changes can be reviewed on the Treasury website: treasury.gov.au/consultation/ c2019-t408904/update-ddo-regime
Insurers and agents need to identify the products affected, prepare TMDs, and amend documents and procedures to meet other DDO obligations. Insurance brokers need to liaise with insurers and their agents on what will be expected of them relevant to the TMD, and amend documents and procedures to meet their DDO obligations. The content of an insurer’s TMD can have a significant impact on an insurance broker’s obligations.
These changes affect a licensee’s IDR obligations. ASIC RG 271 imposes certain ‘enforceable’ obligations and provides other ‘guidance’ to help firms comply with their legal obligations. ASIC has broadened the definitions of ‘complaint’ and ‘small business’, and imposed a new obligation to comply with the requirements rather than just having the procedures in place. They have also set minimum content for IDR responses, reduced the maximum IDR timeframe for providing an IDR response from 45 to 30 days, and made some changes to the timing exceptions. It also imposes requirements regarding interaction with AFCA, identifying and escalating systemic issues, outsourcing IDR processes and complaints standards. IDR data reporting obligations will also be imposed (not as at 5 October 2021). asic.gov.au/regulatoryresources/find-a-document/regulatoryguides/rg-271-internal-dispute-resolution and legislation.gov.au/Details/F2020L00962
Licensees must review and update their IDR procedures and documents to address these changes.
Change to Insurance Contracts Act pre contractual duty of disclosure and misrepresentation regimes – Insurance Contracts Act – 5 October 2021
This: • removes the existing eligible contracts
of insurance duty of disclosure and applies a new duty for ‘consumer insurance contracts’ (CIC). CIC is insurance obtained wholly or predominantly for the personal, domestic or household purposes of the insured, or a contract the insurer opts in as CIC. The duty is for the insured to take reasonable care not to make a misrepresentation to the insurer before entering into the CIC; and • applies the existing duty of disclosure (s21 and s22) and misrepresentation (s23-27) to non-CIC contracts.
Insurers and their agents need to identify what contracts are CIC, and amend procedures and documents to take account of the new duty. Insurance brokers need to identify how they will assist clients in understanding and meeting the new duty, and update their procedures and documents in this regard. No ASIC Guidance has been released at the time of print.
IMPORTANT NOTICE This document is designed to provide helpful general guidance on some key issues relevant to this topic. It should not be relied on as legal advice. It does not cover everything that may be relevant to you and does not take into account your particular circumstances. It is only current as at the date of release. You must ensure that you seek appropriate professional advice in relation to this topic as well as to the currency, accuracy and relevance of this material for you. Liability limited by a scheme approved under Professional Standards Legislation.
