Insurance on the Horizon

Insurance Regulatory Changes on the Horizon

Posted by Anne Wilkinson on Nov 13, 2020 2:16:44 PM
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Estimated read time: 2-3 minutes
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Topics: RG146 Insurance | RG146 Insurance Broking

Over the next 12 months, members of the insurance industry will experience a large volume of regulatory change, riding off the back of the Royal Commission into Financial Services.

Here are some of the key areas to be aware of.

Duty of care not to make misrepresentation to insurer
What is the change?

In order to simplify the law as it relates to insurance contracts, a new duty of disclosure, that applies to a broader class of consumers, will be introduced. The new wording will impose a duty on customers to take reasonable steps not to make a misrepresentation to the insurer.

What does it mean for you?

The new duty of disclosure is set to take effect in April 2021. Insurers will need to amend their documentation to incorporate this new duty. Brokers will also be required to update relevant information as it relates to consumers, and to ensure they have the most up to date documentation from insurers.

Unfair contract terms
What is the change?

The unfair contract terms law, which is administered by ASIC, protects consumers from entering into a contract that is not in their interests. A contract term is deemed unfair if there is a significant imbalance in the parties’ rights and obligations, or if the term would cause detriment to the consumer. Currently, insurance contracts are exempt from the unfair contract terms law. From 5th April 2021, this will change and new insurance contracts that are entered into on or after 5th April (or existing contracts that are varied from this date) will be subject to the laws. Under the new law, if a term is found to be unfair, the contract would be void.

What does it mean for you?

Insurers should already be reviewing their contract terms, to ensure that there is no ambiguity or potential for challenge. This is particularly important for existing contracts, because if they are varied after 5th April 2021, the unfair contract terms law will be applied. Brokers should take care to review any new product wording issued by insurers, to determine the impact it may have on the coverage provided. There is also a chance that the cost of insurance may increase due to this change.

Design and Distribution Obligations (DDO)
What is the change?

This is one of the biggest changes to come from the Royal Commission recommendations and will impact all parts of the financial services industry. The Design and Distribution Obligations (DDO) regime effectively flips the responsibility for determining the suitability of a product from the consumer to the product issuer. Under DDO, product issuers must make a ‘target market determination’ for their products, that sets out who the product is intended for, and take reasonable steps to ensure the product is only marketed and distributed to that target market. DDO also applies to product distributors, who must follow the target market determination set out by product issuers.

The DDO legislation has been passed by Parliament and was originally due to take effect from April 2021. Due to COVID-19, the implementation was deferred, and the new rules will now become effective from 5th October 2021.

What does it mean for you?

The DDO covers almost all products issued by insurers, and so all companies should already be well underway with a review of their product suite. Insurers are required to create a target market determination for each product available from 5th October 2021. They must communicate this determination to distributors (such as brokers or agents) and take reasonable steps to ensure that the product is not sold to consumers outside their determination. This may also result in some products being removed from sale. In addition, there is a requirement to review the determination regularly and to report any issues to ASIC.

For brokers, the new regime means it is no longer enough to rely on the customer to make an ‘informed decision’ as to the suitability of a product. Distributors must be familiar with the target market determination of the products they recommend, and make sure they are not issued to customers outside of this determination (unless significant reasons for doing so can be demonstrated). There will also be reporting obligations on distributors, whereby they have to provide feedback to product providers about the operation of the product, whether it is suitable for the target market, whether there have been any complaints, etc.

But wait there's more...
Lack of independence disclosure

Rules already exist that prohibit any financial services provider who receives conflicted remuneration (specifically commissions) from being able to describe themselves as ‘independent’. The new regulations will require that brokers must disclose this in their Financial Services Guide. Although this change is due to take effect from January 2021, ASIC has yet to provide guidance on the wording it expects to see included in affected FSG.

New ASIC Internal Complaints Dispute Resolution standards

ASIC has issued a new Regulatory Guide that sets out licensees’ obligations for the handling of customer complaints and disputes. Perhaps the biggest change is to the time in which licensees have to resolve complaints - it has been reduced to just 30 days. Brokers and their licensees need to review their own processes in line with this guide and make any necessary changes. The deadline for making this change is October 2021.

ASIC Product Intervention Power

This change is already in place and allows ASIC to intervene and stop the sale of a retail consumer product if the regulator believes it is causing, or will cause, significant detriment to consumers. The detriment can be through a range of factors, including product design, distribution or remuneration. What’s important about this power is that it can be exercised even if there is no breach of the law.


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Over the next 12 months, members of the insurance industry will experience a large volume of regulatory change, riding off the back of the Royal Commission into Financial Services. Here are some of the key areas to be aware of.

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