submission to the financial system inquiry · submission to the financial system inquiry 2 national...

SUBMISSION

TO THE

FINANCIAL SYSTEM INQUIRY

NATIONAL INSURANCE BROKERS ASSOCIATION OF AUSTRALIA

31 March 2014

Submission to the Financial System Inquiry 2

National Insurance Brokers Association of Australia 31 March 2014

TABLE OF CONTENTS

INTRODUCTION ....................................................................................................................................... 3

ABOUT NIBA ............................................................................................................................................ 4

ABOUT INSURANCE BROKERS ................................................................................................................. 4

The role of insurance brokers ............................................................................................................. 4

THE FINANCING OF RISK ......................................................................................................................... 6

THE INSURANCE INDUSTRY IN AUSTRALIA ........................................................................................... 10

Life Insurance .................................................................................................................................... 10

General Insurance ............................................................................................................................. 11

STATUTORY AND MANDATORY INSURANCES ...................................................................................... 16

Workers Compensation .................................................................................................................... 16

Strata Title ......................................................................................................................................... 17

Builders Warranty ............................................................................................................................. 18

Civil Liability ...................................................................................................................................... 18

INSURANCE REGULATION AND SELF REGULATION .............................................................................. 20

Prudential Regulation ....................................................................................................................... 20

Market Conduct Regulation .............................................................................................................. 21

Who does what? ............................................................................................................................... 24

Self Regulation .................................................................................................................................. 25

INSURANCE TAXES ................................................................................................................................ 26

THE FUTURE .......................................................................................................................................... 28

FURTHER INFORMATION AND CONTACT DETAILS................................................................................ 29

APPENDIX............................................................................................................................................. 29



INTRODUCTION

The National Insurance Brokers Association of Australia (NIBA) welcomes the opportunity to provide this Submission to the 2014 Financial System Inquiry.

In one sense, the Inquiry is about how Australia funds growth and prosperity, and from the commentary to date this will be an important part of the Inquiry’s work.

However, economic activity, growth, and the accumulation of assets, brings with it risk. A key feature of the Australian financial system is the management and financing of risk. Insurance is a very important component of the risk financing process, and provides strong protection and security for individuals, small medium and large businesses, multi-national corporations, and public sector agencies and governments.

Overall, NIBA considers that Australia has been well served by the insurance industry in Australia, particularly since the implementation of the recommendations of the HIH Royal Commission. The sound performance of Australia’s insurance industry during the global financial crisis when compared with foreign jurisdictions was good proof of this.

We believe it is important, however, to carefully reflect on the nature and effectiveness of financial services regulation in Australia and this Submission offers commentary and a recommended strategy for this important issue.

This Submission is in the following sections:

• About NIBA

• About Insurance Brokers

• The Financing of Risk

• The Insurance Industry in Australia

• Statutory and Mandatory Insurances

• Insurance Regulation and Self Regulation

• Insurance Taxes

• The Future



ABOUT NIBA

NIBA is the peak industry body for the insurance broking profession in Australia. NIBA represents around 400 member firms, and over 3,000 Qualified Practising Insurance Brokers (QPIBs) throughout Australia. In total, NIBA represents an estimated 90% of all insurance brokers in Australia.

NIBA –

• represents and speaks on behalf of its members to governments, Members of Parliament, regulators, the media and other interested stakeholders;

• promotes the professionalism of insurance broking through industry based training and professional qualifications (NIBA College) and through a strong, independently administered and monitored Code of Practice for members;

• communicates the importance of insurance and the role of insurance brokers to the community;

• provides a number of services to its members, including member communications and an annual industry Convention; and

• liaises with equivalent foreign associations through its membership of the World Federation of Insurance Intermediaries in order to help maintain high standards for its members on an international basis.

The 400 member firms all hold an Australian financial services (AFS) licence, issued by the Australian Securities and Investments Commission (ASIC) under the Corporations Act, which enables them to deal in and/or advise on risk insurance products and other facilities through which people may manage financial risk.

NIBA Members include large multinational insurance brokers, large Australian-owned insurance brokers, and around 380 small to medium sized insurance broker businesses located in the cities, towns and regions across Australia.

ABOUT INSURANCE BROKERS

The role of insurance brokers

The traditional role of insurance brokers is to:

• assist customers to assess and manage their risks, and provide advice on what insurance is appropriate for the customer's personal or business needs;

• assist customers to arrange and acquire insurance; and • assist the customer in relation to any claim that may be made by them under their insurance

program.



In doing the above the insurance broker acts on behalf of the customer as their representative or agent. Insurance brokers offer many benefits to customers and consumers, including:

• assistance with selecting and arranging appropriate, tailored insurance policies and packages • detailed technical expertise including knowledge of prices, terms and conditions, benefits

and pitfalls of the wide range of insurance policies on the market; • assistance in interpreting, arranging and completing insurance documentation; • experience in predicting, managing and reducing risks; and • assistance with claims and the resolution of claims.

In limited cases insurance brokers may act as agent of the insurer (not the insured) but where such a relationship exists the customer is clearly advised up front.

For larger corporations, public sector agencies, governments and other sophisticated purchasers of insurance services, insurance brokers play a key role in assisting with identifying and managing risks, and with assisting the organisation finance risks via self-insurance, national and international insurance and reinsurance programs, or other risk financing mechanisms.

Insurance brokers handle around 90% of the commercial insurance transacted in Australia, and play a major role in risk assessment, risk financing and insurance distribution, handling over $18.4 billion in premiums in the 12 months to 31 December 20131, and placing around half of Australia’s total insurance business. Insurance brokers place most insurance business with Australian authorised insurers, but also place substantial insurance business into Singapore, London and other overseas markets for large and special risks where the local markets are either unable to provide such insurance or provide it on unsatisfactory terms.

All insurance brokers in Australia must hold an Australian financial services (AFS) licence, issued by ASIC under the Corporations Act, which enables them to deal in and/or advise on risk insurance products.

1 Source: Australian Prudential Regulation Authority, Intermediated General Insurance Statistics, December 2013, issued 5 March 2014, available at www.apra.gov.au



THE FINANCING OF RISK

The Inquiry’s Terms of Reference are largely about the financing of growth and prosperity in Australia.

But very little growth and prosperity occurs unless the owners and financiers of that activity are able to obtain insurance, or insurance like products and services, on competitive terms. The insurance industry in Australia helps provide the security that allows individuals, businesses, large and multinational corporations and governments to undertake their normal activities.

Risk is faced by individuals in relation to the property they own, the liabilities they incur to others, and their financial security in being able to earn income, fund their lifestyle and fund their retirement.

Businesses face risk in their daily operations, whether it be the risk of property loss, business interruption, product liability, public liability, employer liability, directors and officers’ liability, and so on.

Communities face risk through their exposure to natural disasters and catastrophes. These events often expose levels of uninsured risk in the community, with the potential for community disruption and permanent losses.

The growth and prosperity of Australia is therefore dependent on mechanisms by which risk is financed – whether by the transfer of risk via the insurance process, or other more sophisticated risk financing mechanisms adopted by larger corporations and governments.

NIBA believes it is important that any examination of the Financial System in Australia include in its work, a review of the financing of risk that is faced by individuals, communities, corporations and governments.

By and large, Australia is well served by the insurance and risk financing mechanisms commonly available across the community. Insurance is available for most areas of risk, from a range of APRA authorised insurance companies. As noted in the introductory comments, it is also possible for large, special and difficult risks to be insured in overseas insurance markets where required or appropriate.

Australia has over 3,000 qualified insurance brokers who are able to assist clients understand and manage their risks, assess the availability of insurance which can cover those risks, negotiate the purchase of insurance on their behalf, and effectively manage the making of any claims.

However, there have been occasions when the normal insurance markets have not been able to provide sufficient cover required by the community.

Following the September 11 attacks on the World Trade Centre in New York, and subsequent bombings in Bali, the risk of terror related events saw the gradual but almost complete withdrawal



of insurance coverage for losses arising out of terrorist events. Property was able to be insured for other types of losses, but not for terrorism.

After careful examination of the issues, the Australian Government initiated the Australian Reinsurance Pool Corporation (ARPC), which effectively provides terrorism cover in the nature of reinsurance of property insurance policies written in Australia. This was a government response to a market failure, and a process was initiated whereby security could be provided in respect of commercial property in this country. Importantly, the terrorism pool was designed to be able to be withdrawn if and when the commercial reinsurance market was able to provide the necessary cover.

Today, there is substantial community concern regarding the limited supply and high cost of property insurance in North Queensland, particularly for many residences and for strata title properties. Only a small number of insurers are operating in that market, and the cost of insurance has risen substantially in recent years.

Many have called for some form of government intervention in the property insurance market to ensure cover is available and affordable across Australia, including in areas exposed to tropical cyclones and other severe weather events.

There have been similar calls for government intervention in the property insurance market to make flood insurance affordable for around 5% of properties that are susceptible to damage by flood. Recent experiences in areas of Queensland, including Brisbane itself, saw many calls for government intervention in this area.

To date, the general insurance industry has responded by including flood cover in most domestic insurance policies, but sometimes at a price that the property owner was not expecting or could not afford.

Australian weather, floods and fires are putting great pressure on the insurance process, and the concept of pooling of risk – which, after all, is what insurance is all about.

By and large, insurance pools the contributions of many to cover the losses of the few. For the majority of policyholders each year, they pay their premiums for the policies they purchase, they receive the promise of cover from their insurers, and nothing further happens. For the unfortunate minority, the insured loss occurs, and they call on the support and assistance of their insurance company to assist with the recovery of the loss and the restoration of their financial position.

The size of the insurance pool is determined by the number of contributors to the pool, and the value of the losses expected to be covered by the pool. The insurance premium is simply the expected value of claims divided by the number of policies, plus the costs of administration and a return on capital.

In some areas – Queensland floods and North Queensland storms are good examples – the value of expected losses has been growing markedly in the past 15 years, and will continue to grow. This requires the size of the insurance pool to grow to meet those expected losses, and if the number of policyholders does not increase, the level of premiums will. This is the reality in respect of flood, cyclone and storm losses in many parts of Australia.



The community does not accept ongoing increases in premiums which are otherwise required to fund the cost of claims being paid out of the insurance pool. Currently, there is substantial community concern about the cost of property insurance in many parts of Australia, particularly in Queensland.

Insurance cannot be the community’s main method of managing and financing losses arising from natural and weather related disasters. A comprehensive insurance program will not protect against the sad and unfortunate loss of life which often accompanies major weather, flood and fire events across Australia.

Equally, the community cannot fund the increasing cost of damage that occurs during weather, flood and fire events. The level of premiums required to fund the insurance pool in many areas, especially in areas of high flood risks, simply cannot be afforded by those communities.

The Australian Business Roundtable for Disaster Resilience and Safer Communities has been formed by a number of commercial and community organisations “to champion the need for a more sustainable, coordinated national approach to make our communities more resilient and our people safer. It’s the only way to reduce the future economic and social costs of the inevitable natural disasters Australians will face.”2

It is widely recognised that there is a continuum of risk management:

• identify and assess the risk;

• manage, eliminate and/or reduce the risk to the greatest extent possible;

• assess the nature and extent of any residual risk; and

• finance the residual risk, either by risk transfer (insurance) or some other form of risk financing.

To date, most effort, and money, has concentrated on disaster response, recovery and restoration. The Australian Business Roundtable presents a compelling case for more effective management of risk, and a more cost effective approach to the financing of the risks faced by communities across Australia.

NIBA firmly believes that risk management and risk mitigation must play a far greater role in the future, in order to ensure the risks that need to be insured (or financed) can be done so at a cost the community can afford, and in a manner the insurance industry can viably manage.

At the end of the day, risk is financed in three ways:

• self insurance, whereby the individual, corporation or government (taxpayers) finance their own risks, thereby putting their own assets and income streams in jeopardy;

2 See: http://australianbusinessroundtable.com.au/



• risk transfer, whereby risks are transferred to an insurance pool, and the insurance pool and the insurer’s capital carry and finance the risk; and

• community funding of risk and loss, which often occurs in Australia at the present time in respect of uninsured losses following natural disasters and other major events which affect numbers of people at the same time.

A modern society with a mature economy such as Australia should be entitled to assume that risks are being properly managed and mitigated, and that the financing of risk is operating in an optimum manner, for the benefit of all. 3

3 NIBA notes that on 20 December 2013 the Federal Government announced its intention to give a reference to the Productivity Commission to examine the financing of natural disasters in Australia



THE INSURANCE INDUSTRY IN AUSTRALIA

Insurance products and services in Australia are generally categorised as either life insurance or general insurance.

Life Insurance

BACKGROUND

Life insurance in Australia is highly concentrated, with the top three life insurers holding 76% of industry assets as at 30 June 20134. The top 10 companies manage 96% of assets. Based on direct regular premium revenue, life insurance is less concentrated, with the top 6 insurers (out of 22 direct writers) writing 75% of the industry premium over 2012/2013.

Life risk insurance business normally falls within three categories:

• individuals take out life insurance, disability insurance and/or income protection insurance, through a life insurance broker, a financial adviser or directly from an insurance company or its agent;

• groups – normally employers – arrange a group policy, and offer or provide the cover to the members of the group (such as employees of the company), with terms and conditions of cover being arranged via a life insurance broker or a financial intermediary; or

• life insurance, disability cover and/or income protection insurance is purchased through a person’s superannuation fund.

Life risk insurance products may be purchased either individually, or as part of a financial planning and investment strategy.

If a life insurance broker is involved, the client will receive advice in relation to the risks that should preferably be insured against (including income protection risks), and will be recommended relevant products to help meet those risks.

If life insurance is purchased in some other manner, or directly from an insurer, there may be little or no advice offered to the client, and they may simply be recommended a product that may or may not meet their circumstances (this is general advice, not personal advice). Concerns have been

4 Background information in this section is taken from the APRA publication Insight, Issue 3, 2013, available at www.apra.gov.au



expressed regarding the sale of life risk insurance products that may not be in the best interests of the customer, once all relevant circumstances have been taken into account.

ISSUES AND CONCERNS

The APRA publication Insight, issued in 20135, sets out a number of issues and concerns in relation to the pricing, profitability and trends in life risk insurance in Australia at the present time.

It would seem that generous cover has been provided, either through group insurance plans or by superannuation funds, with little or no underwriting of the risk associated with the cover being provided. Incorrect pricing leads to inevitable problems in later years, the most obvious example of this being the failure of HIH Insurance group. Here, the Royal Commission found that the most important cause of the company’s failure was the loose underwriting and pricing policies adopted within the company, with little or no regard to the true nature of the risk that was being insured.

There have also been concerns expressed by ASIC representatives regarding the influence of commission and remuneration structures in life risk insurance6. The Future of Financial Advice reforms were intended to address some of these concerns, but the content of those reforms is subject to change as this submission is being prepared.

General Insurance

THE NATURE OF THE GENERAL INSURANCE MARKET IN AUSTRALIA

The general insurance market in Australia has changed dramatically in the past 15 years. With a number of mergers and acquisitions in the late 1990’s, the failure of HIH Insurance in 2001 and strong prudential regulation by the Australian Prudential Regulation Authority (APRA) since 2003, the market has come to be dominated by a number of insurance groups.

5 APRA Insight, Issue Three, 2013

6 See speech by ASIC Deputy Chairman Peter Kell to the Money Management and Financial Services Council Breakfast Series, 12 March 2013, available at: http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/speech-FOFA-and-the-new-reality-PeterKell-published-13-March-2013.pdf/$file/speech-FOFA-and-the-new-reality-PeterKell-published-13-March-2013.pdf



Nevertheless, the insurance market in Australia, by and large, remains very competitive, innovative, and strong.

Following those developments, NIBA now regards the categorisation of insurance markets as follows:

1. Direct insurance markets: these include insurance sold directly by insurers via branches, call centres and the internet, insurance sold by insurer appointed authorised representatives/agents, and insurance sold through a wide range of commercial distribution arrangements (for example, National Australia Bank sells a range of general insurance products on behalf of Allianz, and Woolworths sells a range of general insurance products on behalf of The Hollard Insurance Company). NIBA understands the majority of domestic insurance (home buildings insurance, home contents insurance, private motor car insurance, motor vehicle CTP insurance, travel insurance, consumer credit insurance) is sold via the direct insurance markets. In addition, some small business and commercial insurance is also sold via direct insurance markets.

2. Intermediated insurance markets: insurance products are arranged via intermediaries, invariably insurance brokers and authorised representatives of insurance brokers, acting on behalf of the client and not acting on behalf of the insurer. (Where an insurance broker arranges insurance on behalf of an insurer, and acts on behalf the insurer as its agent, it falls within the first category and where this occurs the relationship is made clear to the client.) NIBA understands the majority of commercial insurance for small, medium and large businesses, large corporates, governments and international corporations, is arranged via the intermediated insurance market. Insurance intermediaries also arrange domestic insurance, although as noted above the majority of domestic insurance is arranged via the direct insurance market. Insurance brokers place business mostly with insurance companies authorised and regulated by APRA (this includes Lloyd’s). Insurance brokers also place insurance business with overseas insurers in the case of large and special risks. Almost half of the general insurance business in Australia (by premium) is placed via insurance intermediaries (including both business placed in Australia and business placed overseas). Details of business placed via the intermediated insurance markets can be found in the APRA publication Intermediated General Insurance Statistics, the most recent being dated 31 December 2013, issued on 5 March 2014, available at www.apra.gov.au.



The direct insurance market is now essentially a national market, dominated by brands associated with the IAG Group and the Suncorp Group. There remain some State based insurers (for example RACQ in Queensland, RACT Insurance in Tasmania), but the majority of business is now placed with insurers operating on a national basis either under their own brands or via commercial distribution arrangements.

Despite the dominance of the direct insurance market by IAG and Suncorp, there has been an increasing amount of activity in this area by the major banks (Commonwealth, Westpac and ANZ via their own insurance companies, NAB as agent for Allianz), the two major supermarket chains (Coles, underwritten by Wesfarmers General Insurance (the Wesfarmers insurance business is currently the subject of a takeover offer by IAG Group, which will not be opposed by the ACCC but the takeover remains subject to further regulatory approval); and Woolworths, underwritten by The Hollard Insurance Company) and by smaller players attacking the market via the internet.

The intermediated insurance market has a larger number of active insurers and underwriters, giving insurance brokers and intermediaries (and their clients) a range of markets – in Australia and overseas - in which to operate. In addition to the commercial insurance arms of IAG Group (CGU) and Suncorp Group (Vero), brokers currently place business locally with QBE, Allianz, Zurich, Wesfarmers General Insurance (including Lumley), ACE, AIG, Chubb, Lloyds and others. As noted previously, large, special and difficult risks can be and are regularly taken to the world wide insurance markets, with the majority of this business being placed in Singapore and London.

THE GENERAL INSURANCE MARKET TODAY

The importance and strength of the general insurance industry in Australia today is evident from the following.

The global financial crisis seriously affected the balance sheets of many corporations world wide, particularly in the financial services sector. During the global financial crisis, APRA authorised general insurers remained viable, well capitalised, and profitable. They continued to honour the promises set out in the insurance policies they had written.

Towards the end of the global financial crisis (2010 – 2012), Australia experienced a number of major weather and natural disaster events, with insured losses extending well above $7 billion during that period.

Once again, the general insurance industry in Australia remained viable, well capitalised and strong. Billions were paid to or on behalf of policyholders, and substantial funds were received by Australian authorised insurers from the world wide reinsurance market to support the payment of claims by local insurers.

The insurance industry has continued to perform its function, and honour its commitments, during more recent, and thankfully less severe, fires, storms and floods.



APRA has reported that the general insurers it supervises met prescribed capital coverage requirements 1.88 times as at 31 December 20137. In other words, general insurers currently maintain 1.88 times the prescribed prudential regulatory capital requirement.

PRUDENTIAL REGULATION OF GENERAL INSURANCE

The Inquiry’s Terms of Reference recognise the need to balance competition, innovation, efficiency, stability and consumer protection.

In relation to stability and consumer protection, the prudential regulatory regime has ensured APRA authorised general insurers have been in a position to honour their promises and meet their obligations to their policyholders, even at times of major stress and challenge.

This outcome would tend to suggest that the prudential regulatory approach, and the prudential standards that are determined and applied by APRA, are at an appropriate level. NIBA believes there is no evidence of any necessity for stronger prudential regulation of general insurance, especially given the cost to policyholders that higher levels of capital adequacy would incur.

MARKET AND CONDUCT REGULATION OF GENERAL INSURANCE

It is useful to note the historical development of the regulation of market conduct for general insurance products and advice in Australia.

Prior to the Australian Law Reform Commission work in the early 1980’s insurance was essentially governed by the law of contract, and the common law that had developed over 200 years in England and Australia in relation to insurance contracts and the distribution of insurance products.

Following the ALRC reports, two major pieces of insurance law were introduced:

• Insurance Contracts Act 1984, which continues today with amendments having been made from time to time; and

• Insurance (Agents and Brokers) Act 1984.

7 APRA Quarterly General Insurance Performance Statistics, December 2013, issued 27 February 2014, page 23, available at www.apra.gov.au



The Agents and Brokers Act introduced a number of statutory provisions specifically designed by the Australian Law Reform Commission to provide for and regulate the effective operation of insurance intermediaries in Australia, having regard to the nature of the produces and services they offer to their clients, and the industry in which they operate.

Following the Financial Services Reform Act 2001, insurance intermediaries became subject to and regulated under Chapter 7 of the Corporations Act 2001. Chapter 7 purports to regulate all financial advice, and makes a distinction between general advice and personal advice. The overall approach of the legislation has been to apply an overarching set of requirements across the financial services sector, a “one size fits all” approach.

The history of legislative amendments since the Financial Services Reform Act has been one of carve outs, exclusions, clarifications, exemptions, as it has been found time and again that the financial services sector, and in particular the specialised risk insurance sector, simply does not lend itself to a “one size fits all” regulatory regime.



STATUTORY AND MANDATORY INSURANCES

The Commonwealth Constitution gives the Australian Parliament power to make laws with respect to “insurance, other than State insurance; also State insurance extending beyond the limits of the State concerned”8.

While the Australian Parliament has broad powers with respect to insurance9, the exemption in relation to State insurance has permitted substantial additional legislative enactments by the State and Territory Parliaments. These include the following.

Workers Compensation

The provision of benefits for workplace injury and disease, and arrangements for the insurance of employer liabilities in this area, are governed by State and Territory legislation, with additional legislation by the Australian Parliament in certain areas.

This has led to a seriously fragmented approach to this area of activity:

• Six State workers compensation schemes

• Two Territory workers compensation schemes

• Comcare scheme for Federal public servants

• Comcare scheme for certain private sector companies

• Specialist workers compensation scheme for coal mines in New South Wales

• Specialist workers compensation scheme for seafarers

• Etc.

8 Commonwealth of Australia Constitution Act, section 51 (xiv)

9 The Parliament has exercised those powers to enact the Insurance Act, the Insurance Contracts Act, and regulatory provisions exercised by APRA and ASIC.



Employers with staff in more than one State or Territory must provide coverage for those members of staff in the State or Territory in which the staff work. The problem is insurance arrangements vary markedly across the various schemes, compensation and benefits vary widely, premiums and premium setting structures vary widely, and differing approaches are taken in relation to key areas such as who is an employee, what constitutes a compensable injury, what type of benefits will be offered, whether common law damages will be available or not, and so on.

There have been calls for national consistency in workers compensation, and many commitments have been given over time to work to achieve national consistency, but the reality today is that little has changed in the past 20 years.

This is an issue that affects a very large number of employers and employees across Australia, and NIBA believes it is now time to achieve a far more efficient and effective workers compensation insurance process in Australia.

It should also be noted that despite major reforms as a result of the National Competition Policy agenda of the early 2000’s, there has been no change in the nature and extent of public sector underwriting of workers compensation in Australia. Public sector schemes have had poor financial performance in recent years, with heavy exposure of insurance funds to high risk investments. NIBA firmly believes:

• all employers should have freedom to choose their preferred workers compensation insurer;

• the manager of the risk should “own” the risk, through the transfer of liabilities under the normal insurance process (public sector workers compensation insurers all assert that the financial liabilities are owned by employers, not by the WorkCover “insurer”);

• more effective and transparent pricing of workers compensation risk should be introduced.

All of this should occur on a nationally consistent basis, so that employers with staff in more than one State can operate on a more efficient and effective basis, under one set of laws.

Strata Title

Strata title (and equivalent) legislation is the responsibility of State and Territory Parliaments.

Normally, the legislation requires the corporate entity that holds the title to the land and owns the building and the common property to maintain insurance in respect of the property. The terms of the legislation differs as between the States and Territories, and many are in need of update regarding the mandatory coverage specified in the legislation.

The risks and exposures faced by strata title body corporates are essentially the same across Australia, and this is an area where greater national consistency in insurance requirements will be likely to deliver benefits to property owners across the country.



BUILDERS WARRANTY

State and Territory legislation governs the area of “builders warranty” or “home owners warranty” across Australia. The legislation is designed to provide home owners with some degree of protection against defective building work, or cases where the builder goes into liquidation or disappears before the building has been completed. The legislation requires builders (and, on occasion, owner builders) to take out builders warranty insurance to provide some degree of protection to home owners.

The nature and content of builders warranty regulation varies across Australia. The degree of protection varies from State to State, and Territory to Territory.

The nature of the “insurance” is also challenging. While it is called builders warranty, and purports to provide a warranty to home owners, in reality the risk being insured is the financial standing and viability of the builder. The financial viability of the builder is being insured, not the work they perform.

While the intent was to require builders warranty from the insurance markets, insurance companies have largely withdrawn from this area of activity, and the “insurance” cover is now mostly offered by State and Territory government agencies.

If State and Territory governments wish to continue with some form of insurance process, it will be important to carefully determine the nature of the risk (defective work, financial viability of the builder, or some other type of risk), and work with the insurance industry to develop policies that are likely to be able to cover and respond to those risks, and be affordable for home owners.

CIVIL LIABILITY

Public liability insurance policies operate essentially under Federal legislation, primarily the Insurance Contracts Act 1984.

However, the public liability insurance crisis of 2002 (where, following the failure of HIH, public liability insurance became difficult to obtain or was only available at prices that were regarded as unacceptable) showed that the risk being insured – compensation and damages awarded as a result of personal injury sustained by third parties – was subject to the laws of various States and Territories.



The Federal Government has the capacity to monitor and assess developments in the insurance markets via Treasury (on matters of industry policy and legislation) and from a regulatory perspective, via APRA and ASIC.

The States and Territory Governments have agencies that work in specific areas – workers compensation, motor accident personal injury compensation, builders’ warranty, etc. – but they often have little understanding of the broader working of the insurance markets in Australia. This was clear during the public liability crisis, where there was no clear Ministerial responsibility for public liability issues and challenges at State level.

The issues and challenges arising out of the public liability insurance crisis were addressed via an ad hoc Ministerial group largely comprised of Federal and State Treasury ministers. The Ministerial Meeting on Insurance Issues led to substantial reform of public liability and proportionate liability laws across Australia.

However, as these law reforms were essentially undertaken at State and Territory level, the approach in each jurisdiction often differed from the recommended approach. This is especially the case in the area of proportionate liability (the sharing of responsibility for loss when there is more than one responsible party).

The insurance process in Australia, insurers and policyholders will all benefit from a greater degree of consistency in approach on matters such as this.



INSURANCE REGULATION AND SELF REGULATION

The insurance industry in Australia operates under a “twin peaks” regulatory model, with prudential regulation of insurance companies being undertaken by the Australian Prudential Regulation Authority (APRA) and market conduct being regulation by the Australian Securities and Investments Commission (ASIC). There is also a limited degree of regulatory activity by the Australian Competition and Consumer Commission (ACCC).

Prudential Regulation

As noted above, the general insurance industry witnessed the collapse of one of the largest insurance companies in the country (HIH Insurance group, 2001), but since that time has operated under a more stringent prudential regulatory model with a very heavy emphasis on careful insurance company management of the risks being underwritten, the pricing of those risks, and the maintenance of conservative reserves and reinsurance programs to ensure claims are paid as and when they fall due for payment.

The net result of the post-HIH reforms was the very limited impact on Australian authorised general insurance companies during the global financial crisis, leaving them in a position where they were able to meet their obligations to policyholders following the very considerable natural disasters in 2010, 2011 and 2012.

This outcome would tend to suggest that the prudential regulatory approach, and the prudential standards that are determined and applied by APRA, are at an appropriate level. We note that APRA authorised general insurers maintained 1.88 times the prescribed capital amount of coverage as at 31 December 201310. NIBA believes there is no evidence of any necessity for stronger prudential regulation of general insurance in Australia.

NIBA’s concern in this area arises from the role of NIBA Members as advisers to their clients in procuring appropriate insurance protection. Prudential capital requirements come at a cost – shareholders expect and demand compensation for the shareholders’ capital that is provided to the business to support prudential reserves. It is inevitable that higher levels of capital adequacy would be likely to have an impact on the cost of insurance products, but this cost will be an added burden

10 APRA Quarterly General Insurance Performance Statistics, December 2013, issued 27 February 2014, page 7, available at www.apra.gov.au



to clients who already have the benefit of an industry that has shown its capacity to meet very significant real world challenges in recent years.

Market Conduct Regulation

Following major financial services reforms in 2001, Australia has now experienced over 10 years of detailed licensing and regulatory oversight by ASIC of financial services providers in Australia.

The Financial System Inquiry provides an opportunity for an independent assessment of the effectiveness of the operation of this regime.

In many cases, improvements have occurred, with minimum education, training and business standards for holders of Australian financial service licences.

In some areas, there are doubts as to the effectiveness of the regulatory requirements. For example, at the ASIC Annual Forum in Sydney on 24 and 25 March 2014, there was much discussion and acknowledgement to the effect that product disclosure obligations do not work, do not result in better informed consumers and do not lead to better decision making by those consumers. They are and can only be a limited part of the end solution.

The key assumption regarding market regulation has been that if consumers are provided with good information, they will act rationally and purchase products and services that are in their interests and meet their needs. Statements by leading Australian and international regulators at the ASIC Annual Forum indicated an acceptance that this assumption is no longer correct.

There are two further key considerations that indicate it may be timely for a careful review of regulatory policy in Australia

It is generally accepted that regulatory policy in Australia is intended to be principles based, which allows a range of responses by market participants as to how they implement and observe regulatory requirements. In reality, with the publication of a large number of ASIC Regulatory Guides and the significant risk of penalty or ASIC action for what ASIC believes may be non-compliance, it would appear that legal and compliance professionals concentrate on complying with detailed matters contained in the Regulatory Guides rather than observing the broad principles in a manner that suits their own business operations.

Secondly, there has been a tendency for regulatory policy to be developed and applied on a “one size fits all” approach. This has resulted in the need for various sectors across the financial services industry to be constantly arguing for adjustments, amendments, carve outs and exemptions from specific regulatory requirements.

The recent and current debates regarding the Future of Financial Advice (FOFA) reforms are an excellent example of this issue. The FOFA reforms were developed following a Parliamentary Joint Committee which examined the collapse of Trio and Storm, and the subsequent losses sustained by



many Australian investors. The Committee made a number of regulations designed to improve the nature and quality of financial planning and investment advice in Australia.

The problem with the implementation of those recommendations is that they were effectively applied to all types of financial advice, for all types of financial products. Insurance brokers, mortgage brokers, stock brokers, bank tellers, were all caught by reforms intended to apply to financial planners and investment advisers.

The Parliamentary Joint Committee made no recommendations in relation to advice provided by insurance brokers. Despite this, recommendations designed for products and advice in the area of long term wealth creation and retirement savings were applied to short term general insurance and life insurance risk products.

The following are some examples of issues and concerns that have arisen because of the adoption of this regulatory approach in Australia.

• Group Purchasing Bodies (GPBs): these are arrangements where an entity (the contracting insured) takes out an insurance policy that is specified to provide benefits to its employees, members, or customers. For example, a sporting body may take out personal accident or liability insurance protecting its members as part of the membership fee, or a bank may provide travel insurance as part of a package of benefits for those who use the bank’s credit card products. These are insurance arrangements implemented by the GPB in favour of the specified beneficiaries under the policy – those able to claim under the insurance cover. There are significant benefits for those involved in such transactions, given their group nature. By reason of the one size fits all approach, ASIC has taken the view that such arrangements may result in custodial services being provided, and in some cases the provision of a managed investment scheme. Whilst ASIC sought to provide a limited form of Class Order relief, it is unnecessarily limited and complex. NIBA has been making submissions to the Federal Government and to ASIC in relation to this matter since 2008, and as a result ASIC has effectively postponed certain aspects of the Class Order relief since that time. In reality, all agree a better solution is needed, but unfortunately it takes a significant amount of time having regard to things such as change of Governments and regulator staff turnover.

• Definition of Retail Client: it is accepted that less sophisticated clients require greater protections than clients versed in making financial decisions. The current definition of “retail” in the general insurance context is based on whether the insured is an individual or small business employing a certain number of employees AND whether the product is of a listed type of product, without regard to other relevant factors. There are some real concerns with the scope of the product definitions used, which could be seen as going beyond what was originally intended and discussed. As a result there is a degree of inconsistency in market practice depending on what view is taken. Other financial products are subject to four key tests: product value, individual wealth, professional investors and small businesses. NIBA believes it is timely to review the definitions of “retail” and “wholesale” client, to ensure all key circumstances are taken into account, and to allow a



client to be treated as a sophisticated purchaser along the lines of the “sophisticated investor” definition of Chapter 6D of the Corporations Act.

• Disclosure documentation for retail clients: as noted above, it is now becoming widely accepted that current product disclosure requirements are not working, the materials are not read, and the disclosure does not lead to more informed and better decision making by consumers. NIBA believes critical review of disclosure obligations is now warranted.

• Information or advice: currently there is much debate about the nature and content of general advice and personal advice (including what is called scaled personal advice). Under current regulatory requirements, personal advice carries the highest level of regulatory obligations, and general advice the least. A consumer with only limited knowledge and understanding of financial products is unlikely to be able to understand the subtle differences between general advice and personal advice. When they ask about a product, they may assume they are receiving personal advice, even though they may only be getting general recommendations and information about the product. Whilst a general advice warning is required by anyone providing general advice it currently may not be fsufficient to warn customers of the nature of the advice being received. NIBA believes there must be greater clarity between general advice and personal advice, in order to ensure consumers understand whether they are receiving general recommendations or personal advice on whether a product is appropriate for their personal needs or not.

• Scaled advice: with the provision of scaled advice, the crucial issue is to ensure the customer understands how the advice is “scaled” and the relevance and impact of this scaling, and that the advice provided is appropriate. This would be of real importance where such a service is provided by a product issuer or their agent, given the inherent conflicts of interest that can arise in these circumstances.

• Who do you act for: NIBA also believes it is critical that anyone giving information or advice in relation to financial products and services should make it very clear at the outset whether they are acting on behalf of their employer or appointor (in cases where they are an authorised representative or an agent of a product manufacturer) or whether they are acting on behalf of the client. This should not be hidden in documentation as it is a significant warning to the client that any general recommendations given are in reality on behalf of the product issuer and not the client.

The appendix to this Submission contains an outline of the ways in which the financial services regulatory regime contained in Chapter 7 of the Corporations Act affects insurance brokers.

One of ASIC’s key objectives is to “contribute to Australia’s economic reputation and wellbeing by ensuring that Australia’s financial markets are fair and transparent, and supported by confident and informed investors and consumers”11. In the area of insurance products and services, the overall

11 See: http://www.asic.gov.au/asic/ASIC.NSF/byHeadline/Our%20role#protecting



approach has been one of promoting improved financial literacy followed by extensive market regulation.

NIBA respectfully submits that no amount of financial literacy and education programs will produce “confident and informed consumers” of risk insurance products – the community does not understand and appreciate the nature and extent of risk, and the community will never become familiar with the nature and extent of insurance products and policies that are available in the market.

In these circumstances, NIBA respectfully submits that the only realistic way to achieve confident and informed consumers of insurance risk products is to promote financial literacy followed by the need to seek qualified, professional advice from a licensed adviser who is experienced and expert in risk and insurance matters In other words, an insurance broker.

Who does what?

While the distinction between prudential and market conduct regulation is reasonably clear, it may be timely for a careful re-assessment and confirmation of the relative roles and responsibilities of APRA and ASIC, to ensure they are both focussed on clear and unambiguous areas of responsibility.

It may also be timely for a careful review of the scope of coverage of regulatory activity in Australia. This issue became important when the Banksia organisation failed, and many individuals and businesses in rural Victoria lost substantial amounts. Banksia was not a deposit taking institution, and was not, therefore, subject to prudential regulation by APRA. But the company was acting with all the hallmarks of a deposit taker, with “investments” (in reality deposits) being at call and subject to withdrawal at any time.

Similar issues can arise in relation to discretionary risk management type arrangements. These arrangements have the appearance of insurance companies – they can receive contributions, and assess and pay claims. However they are not insurance companies, as it is left to the discretion of the issuer as to whether a claim will be paid or not. With an insurance policy, if the claim fits within the terms of the insurance contract the insurer is legally bound to pay the claim. NIBA is aware of at least one arrangement of this nature offering its services to the general public, where it is questionable as to whether the public would be unlikely to understand the discretionary nature of the arrangement and other pertinent facts. Once again, because this is not insurance, there is no prudential regulatory oversight of such bodies.



Self Regulation

Insurance brokers and the National Insurance Brokers Association have for many years sought to promote the need for quality, professional, qualified advice and support for their clients. Self regulation of insurance broking has taken three forms:

• NIBA College is an accredited Registered Training Organisation, providing Certificate, Diploma, Advanced Diploma and Graduate Diploma level training and qualifications for those wishing to work in insurance broking in Australia. NIBA strongly recommends the Diploma in Insurance Broking as the required qualification for insurance broking. This level of qualification is more extensive than that currently required by ASIC.

• Qualified Practising Insurance Broker – QPIB – status has been established by NIBA for many years as an objective indicator to clients and the community that the insurance broker is qualified and experienced to provide high quality, expert advice on risk and insurance matters.

• The Insurance Brokers Code of Practice has been thoroughly reviewed and revised to ensure the industry’s offering to clients and the community remains up to date and relevant. The revised Code of Practice will take effect and be binding on all NIBA Members as from 1 July 2014. The Insurance Brokers Code of Practice is available at: https://www.niba.com.au/codeofpractice/index.cfm

https://www.niba.com.au/codeofpractice/index.cfm



INSURANCE TAXES

Virtually all general insurance policies in Australia are subject to two taxes: GST, and State or Territory stamp duty. In New South Wales, and for certain policies in Tasmania, fire services levies are a third revenue burden carried by policyholders.

The combined operation of GST and stamp duty tends to increase the cost of general insurance by around 18 – 20%, depending on the jurisdiction.

In 2013, the Queensland Government increased the rate of stamp duty on general insurance policies. Queensland property owners had faced very substantial increases in property insurance premiums following the cyclones and floods of 2010, 2011 and 2012. Increases for strata body corporate insurance were in the range of 800%. Property insurance in Queensland currently carries insurance taxes of 19%, adding considerably to the burden carried by the community in that State.

The ACT Government is currently implementing a program of gradual removal of stamp duty on insurance policies. This has been welcomed and applauded by the insurance industry, and by insurance brokers.

New South Wales is now the only mainland State or Territory to maintain a fire (emergency) services levy on insurance premiums. Victoria removed fire services levies on insurance policies taken out or renewed after 1 July 2013.

Insurers and insurance brokers have been calling for the reform of insurance taxes for many years. The argument is simple: insurance helps people and businesses recover from loss, when an unfortunate (insured) event occurs. Insurance helps people and businesses restore their financial position, and to continue their private life or their business operations.

Independent reviews of insurance and insurance taxes, from the relatively recent Henry tax review back to the HIH Royal Commission, have all called for the reform of insurance taxes in Australia.

In the case of fire services levies, the approach has been to replace a levy on insurance premiums (which results in fire services operations being funded by those who take out insurance) to a levy on property (which results in fire services operations being funded by all who benefit from the operation of the fire and emergency services). As noted above, New South Wales is the only mainland State yet to reform these levies.

It is acknowledged the reform of State and Territory stamp duty on insurance policies is likely to be more difficult. Stamp duty on insurance premiums provides substantial revenue flows to the State and Territory Governments. It is natural that State and Territory Governments would want or indeed need to find alternative forms of revenue to replace stamp duty on insurance.

NIBA calls once again for the Federal Government to provide the leadership in the reform of insurance taxes, and the development of alternative taxation arrangements whereby State and



Territory Governments can meet their revenue needs without adding an undue burden to those to protect their personal and business assets and income by taking out insurance. This may well mean reform of the operation and rate of GST.

General government expenditure should be funded by broad based taxation revenue, not by taxes and levies on specific products or services which operate in the community’s interest.

NIBA calls on the Financial System Inquiry to add its voice in support of the need for reform of insurance taxes in Australia.



THE FUTURE

The OECD, the Council of Australian Governments, the Productivity Commission and many others have identified, confirmed and agreed on the core principles that must be applied whenever consideration is being given to regulatory intervention in markets and the economy. They include:

• a clear statement of what actually is the issue being addressed

• is there a sound legal and empirical basis for this issue

• have all potential options for dealing with the issue been identified and assessed, including the option of no further action

• a clear statement of the proposed regulatory intervention, including the governing principles that will be used to guide the development of the regulatory intervention

• a sound legal and empirical basis for the proposed intervention, including a clear assessment of the nature and value of benefits to be derived, and the nature and level of costs (including compliance costs) that will be incurred as a result of the intervention

• a careful analysis and assessment that the proposed intervention will produce benefits that justify the costs, considering the distribution of effects across society, and taking into account economic, environmental and social impacts of the intervention

• assurance that the proposed intervention will minimise costs and market distortions

• strategies to ensure the regulation will promote innovation through market incentives and promote global approaches to strong and effective community outcomes

• be clear, simple and capable of practical adoption

• be consistent with other regulations and policies

• be compatible as far as possible with competition, trade and investment-facilitating principles at domestic and international levels.

The history of financial services regulation in Australia does not show strong and consistent observance of these key principles. A preference for principles based regulation has been followed by hundreds of pages of statutes, regulations, regulatory guides and other instruments. The “one



size fits all” approach has resulted in regulations designed for one sector being applied inappropriately in other areas, where there were no issues or concerns in the first place.

NIBA urges the Financial System Inquiry to strongly recommend the application and observance of these key principles in any further regulatory reform of the Australian financial services system.

NIBA also strongly commends the Australian Government on its focus of reducing red tape. This has already had a significant and positive impact in NIBA’s dealings with the Government and with regulators.

FURTHER INFORMATION AND CONTACT DETAILS

For further information or clarification of any matter in this Submission, please do not hesitate to contact:

Dallas Booth

Chief Executive Officer

National Insurance Brokers Association of Australia

Telephone: (02) 9964 9400

Email: [email protected]

APPENDIX

The appendix to this Submission contains an outline of the ways in which the financial services regulatory regime contained in Chapter 7 of the Corporations Act affects insurance brokers.

mailto:[email protected]

1

NIB

A O

VER

VIEW

OF

THE

FIN

AN

CIA

L SE

RVI

CES

REQ

UIR

EMEN

TS IN

CH

APT

ER 7

OF

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CO

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AC

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AR

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OF

POTE

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CH

AN

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Set o

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elow

is a

sum

mar

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the

key

FSR

obl

igat

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affe

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g in

sura

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brok

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and

area

s id

entif

ied

whe

re c

hang

e sh

ould

be

cons

ider

ed.

FIN

AN

CIA

L SE

RVI

CES

GEN

ERA

LLY

In re

latio

n to

insu

ranc

e, a

ny p

erso

n pr

ovid

es a

fina

ncia

l ser

vice

whe

re th

ey:

• pr

ovid

e fin

anci

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rodu

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dvic

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r •

prov

ide

a de

alin

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rvic

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r exa

mpl

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suin

g or

arr

angi

ng a

gen

eral

insu

ranc

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oduc

t),

in re

latio

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an

insu

ranc

e pr

oduc

t cau

ght b

y th

e Ac

t.

Scop

e of

insu

ranc

e ca

ught

by

the

Act

The

Act a

pplie

s to

mos

t ins

uran

ce p

rodu

cts,

with

the

nota

ble

exce

ptio

ns b

eing

rein

sura

nce

and

Stat

e in

sura

nce.

Cur

rent

ly th

ere

does

not

app

ear t

o be

any

issu

e w

ith w

hat i

nsur

ance

the

Act d

oes

and

does

not

cat

ch.

In re

latio

n to

non

-insu

ranc

e ris

k m

anag

emen

t pro

duct

s, th

ere

seem

s to

be

a de

gree

of u

ncer

tain

ty re

gard

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the

rele

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pro

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type

/ser

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to a

di

scre

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utua

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d.

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no

curr

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from

ASI

C o

n w

hat i

s an

d is

not

“ins

uran

ce” w

hich

man

y re

gula

tors

con

tain

in g

uida

nce

give

n its

sig

nific

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. The

re is

gui

danc

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re

latio

n to

ext

ende

d w

arra

ntie

s w

hich

is u

sefu

l. C

onsi

dera

tion

shou

ld b

e gi

ven

to s

uch

guid

ance

. Thi

s co

uld

be d

one

in c

onju

nctio

n w

ith A

PRA

whi

ch a

lso

does

no

t hav

e an

y su

ch g

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Insu

ranc

e cl

aim

s ha

ndlin

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d se

ttlem

ent s

ervi

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are

not f

inan

cial

ser

vice

s

Ther

e is

no

conc

ern

with

this

car

ve o

ut.

2

Fina

ncia

l pro

duct

adv

ice

Ther

e ar

e tw

o ty

pes

of fi

nanc

ial p

rodu

ct a

dvic

e: "p

erso

nal a

dvic

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nd "g

ener

al a

dvic

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hich

are

def

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in s

766B

as

follo

ws:

Gen

eral

adv

ice

Pers

onal

adv

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A re

com

men

datio

n or

a s

tate

men

t of

opin

ion,

or a

repo

rt of

eith

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f tho

se

thin

gs th

at:

• is

inte

nded

to in

fluen

ce th

e pe

rson

it

is g

iven

to in

dec

idin

g so

met

hing

in

rela

tion

to a

fina

ncia

l pro

duct

(or

clas

s of

one

or i

nter

est i

n on

e); o

r

• co

uld

reas

onab

ly b

e re

gard

ed a

s be

ing

inte

nded

to h

ave

such

an

influ

ence

.

The

pers

on in

mak

ing

the

reco

mm

enda

tion

or g

ivin

g th

e op

inio

n ha

s co

nsid

ered

one

or m

ore

of th

e pe

rson

's

obje

ctiv

es, f

inan

cial

situ

atio

ns o

r nee

ds o

r wou

ld

reas

onab

ly b

e ex

pect

ed to

hav

e do

ne s

o by

the

pers

on

they

pro

vide

it to

. Th

e co

ncep

t of “

scal

ed a

dvic

e” h

as b

een

intro

duce

d by

th

e re

cent

FO

FA a

men

dmen

ts w

hich

is p

erso

nal a

dvic

e w

ithin

agr

eed

para

met

ers.

NIB

A be

lieve

s pe

rson

s gi

ving

gen

eral

adv

ice

shou

ld m

ore

clea

rly p

oint

out

the

limita

tions

of s

uch

advi

ce. T

he G

ener

al A

dvic

e W

arni

ng re

quire

men

t is

not i

n N

IBA’

s vi

ew s

uffic

ient

to g

ive

suffi

cien

t war

ning

.

Scal

ing

of a

dvic

e - N

IBA

supp

orts

the

curr

ently

pro

pose

d be

st in

tere

st d

uty

chan

ges

whi

lst n

otin

g th

ey re

mai

n by

thei

r nat

ure

som

ewha

t unc

lear

. In

rela

tion

to

the

abilit

y to

agr

ee o

n th

e sc

ope

of a

dvic

e, N

IBA

note

s an

y at

tem

pts

by p

rodu

ct is

suer

s or

rela

ted

prod

uct d

istri

buto

rs to

pro

vide

sca

led

pers

onal

adv

ice

shou

ld

be m

onito

red

give

n th

e sp

ecia

l con

flict

s of

inte

rest

that

may

aris

e in

suc

h ca

ses.

Fact

ual i

nfor

mat

ion

The

prov

isio

n of

pur

e fa

ctua

l inf

orm

atio

n w

ill no

t be

view

ed a

s fin

anci

al p

rodu

ct a

dvic

e.

Fact

ual i

nfor

mat

ion

is o

bjec

tivel

y as

certa

inab

le in

form

atio

n th

e tru

th o

r acc

urac

y of

whi

ch c

anno

t be

reas

onab

ly q

uest

ione

d. I

t mus

t not

invo

lve

the

expr

essi

on

of a

ny e

xpre

ss o

r im

plie

d op

inio

n or

reco

mm

enda

tion.

If i

t doe

s, it

wou

ld c

onst

itute

fina

ncia

l pro

duct

adv

ice.

A

com

mon

issu

e th

at a

rises

is in

rela

tion

to b

rand

ed p

rodu

cts

and

whe

ther

the

use

of a

bra

nd o

f a p

artn

er is

adv

ice

or n

ot.

3

Diff

eren

t vie

ws

are

take

n in

the

mar

ket a

nd N

IBA

belie

ves

clar

ity s

houl

d be

pro

vide

d as

in it

s vi

ew th

e us

e of

an

entit

y’s

bran

d sh

ould

at l

east

be

seen

as

the

prov

isio

n of

gen

eral

adv

ice

unle

ss th

ere

are

sign

ifica

nt a

nd p

rom

inen

t dis

clai

mer

s.

Dea

ling

As it

app

lies

to g

ener

al in

sura

nce,

dea

ling

is d

efin

ed a

s fo

llow

s:

• ap

plyi

ng fo

r or a

cqui

ring

a fin

anci

al p

rodu

ct;

• is

suin

g a

finan

cial

pro

duct

; •

vary

ing

a fin

anci

al p

rodu

ct;

• di

spos

ing

of a

fina

ncia

l pro

duct

; and

•

arra

ngin

g fo

r a p

erso

n to

app

ly fo

r or a

cqui

re, o

r to

issu

e, v

ary

or d

ispo

se o

f a fi

nanc

ial p

rodu

ct.

The

mai

n is

sue

is u

sual

ly th

e gr

ey a

rea

on w

heth

er a

per

son

is “a

rran

ging

” or a

ctin

g as

a c

lerk

& c

ashi

er/re

ferr

er n

on-fi

nanc

ial s

ervi

ce p

rovi

der.

ASIc

has

pr

ovid

ed G

uida

nce

but g

reat

er c

larit

y is

pro

babl

y re

quire

d to

redu

ce in

cons

iste

ncy

in th

e m

arke

tpla

ce a

s di

ffere

nt p

ositi

ons

can

be ta

ken

depe

ndin

g on

the

view

ta

ken.

Who

are

reta

il an

d w

hole

sale

clie

nts?

Subs

ectio

n 76

1G(5

) of t

he A

ct s

ets

out w

hen

a pe

rson

will

be s

een

as a

reta

il cl

ient

in re

latio

n to

gen

eral

insu

ranc

e pr

oduc

ts.

Ther

e ar

e tw

o te

sts

whi

ch B

OTH

mus

t be

met

for a

per

son

to b

e se

en a

s a

reta

il cl

ient

. If o

ne is

not

met

the

clie

nt is

who

lesa

le.

The

prod

uct m

ust:

• be

pro

vide

d to

an

indi

vidu

al; o

r •

be o

r wou

ld b

e, fo

r use

in c

onne

ctio

n w

ith a

sm

all b

usin

ess

(i.e.

a b

usin

ess

empl

oyin

g le

ss th

an –

if th

e bu

sine

ss is

or i

nclu

des

the

man

ufac

ture

of

good

s –

100

peop

le; o

r oth

erw

ise

– 20

peo

ple)

.

If th

e "in

sure

d" u

nder

the

polic

y is

not

with

in th

e ab

ove

cate

gorie

s th

en th

ey w

ill no

t be

reta

il cl

ient

s.

Ther

e is

an

exem

ptio

n w

hich

pro

vide

s th

at w

here

a fi

nanc

ial p

rodu

ct o

r ser

vice

is p

rovi

ded

to o

r acq

uire

d by

a b

ody

corp

orat

e as

a w

hole

sale

clie

nt, r

elat

ed

bodi

es c

orpo

rate

of t

he c

lient

are

als

o ta

ken

to b

e w

hole

sale

clie

nts

in re

spec

t of t

he p

rovi

sion

or a

cqui

sitio

n of

that

pro

duct

or s

ervi

ce.

A pe

rson

in th

e ab

ove

cate

gory

will

not b

e a

reta

il cl

ient

if th

ey a

re n

ot p

rovi

ded

with

a p

olic

y w

hich

pro

vide

s co

ver o

f the

type

spe

cifie

d in

regu

latio

ns 7

.1.1

1 to

7.

1.17

A. T

hey

will

only

be

a re

tail

clie

nt fo

r the

cov

er th

at is

cau

ght a

nd n

ot a

ny c

over

that

isn'

t (th

is is

the

case

eve

n if

it is

a b

undl

ed p

rodu

ct).

4

The

legi

slat

ion

will

cons

ider

that

any

par

t of a

con

tract

of i

nsur

ance

whi

ch p

rovi

des

cove

r of t

he ty

pe d

efin

ed, w

ill be

trea

ted

as c

augh

t by

the

reta

il cl

ient

de

finiti

on.

The

othe

r par

ts o

f the

cov

er n

ot re

late

d to

the

cove

r whi

ch is

cau

ght,

will

not h

owev

er b

e tre

ated

as

reta

il. T

his

mea

ns th

at p

acka

ged

prod

ucts

may

be

par

t ret

ail a

nd p

art w

hole

sale

dep

endi

ng o

n w

heth

er a

ny c

over

sec

tion

incl

udes

the

reta

il cl

ient

type

cov

er.

For e

xam

ple,

if a

pol

icy

(whe

ther

sta

nd a

lone

(e.g

Lia

bilit

y po

licy)

or a

sec

tion

of a

pac

kage

cov

er) c

over

s a

"mot

or v

ehic

le" a

s de

fined

in th

e re

gula

tion

for l

oss

or d

amag

e or

liab

ility

for l

oss

of, o

r dam

age

to, p

rope

rty c

ause

d by

or r

esul

ting

from

impa

ct o

f a m

otor

veh

icle

with

som

e ot

her t

hing

, the

n th

e co

ver i

n re

latio

n to

th

at m

otor

veh

icle

is a

rgua

bly

caug

ht p

rovi

ded

the

rele

vant

insu

red

is a

n in

divi

dual

or s

mal

l bus

ines

s as

def

ined

abo

ve in

the

who

test

.

This

wou

ld n

ot h

ave

been

the

inte

nt o

f the

orig

inal

legi

slat

ion

and

NIB

A be

lieve

s th

at th

is in

cide

ntal

cov

erag

e is

sue

coul

d be

tidi

ed u

p fo

r bet

ter c

larit

y.

ASIC

als

o se

ems

to ta

ke th

e vi

ew th

at a

pol

icy

prov

ided

to a

n in

sure

d w

here

third

par

ties

are

auto

mat

ical

ly c

over

ed a

s in

tere

sted

third

par

ties

(i.e.

par

ties

that

ar

e no

t con

tract

ing

parti

es s

uch

as s

ectio

n 48

par

ties

unde

r the

Insu

ranc

e C

ontra

cts

Act 1

984

(Cth

)) w

ill be

see

n as

bei

ng p

rovi

ded

to th

e co

ntra

ctin

g in

sure

d an

d no

t the

third

par

ties

for t

he p

urpo

se o

f thi

s te

st. T

his

is a

sen

sibl

e vi

ew b

ut c

ould

be

bette

r cla

rifie

d.

For l

ife ri

sk p

rodu

cts

and

othe

r ris

k m

anag

emen

t pro

duct

s th

e de

finiti

on is

diff

eren

t and

bas

ed o

n a

num

ber o

f oth

er te

sts.

Con

side

ratio

n as

to w

heth

er s

uch

test

s m

ake

sens

e in

the

gene

ral i

nsur

ance

con

text

cou

ld b

e co

nsid

ered

alo

ng w

ith w

heth

er th

e sm

all b

usin

ess

test

is s

till

appr

opria

te.

5

LIC

ENSI

NG

Gen

eral

ly

A pe

rson

can

ON

LY p

rovi

de a

fina

ncia

l ser

vice

:

• un

der i

ts o

wn

AFSL

, •

as a

n em

ploy

ee o

f an

AFS

L ho

lder

, •

as a

n au

thor

ised

repr

esen

tativ

e (A

R) o

f an

AFS

L ho

lder

, •

as a

Dis

tribu

tor o

f an

AFS

L ho

lder

und

er A

SIC

Cla

ss O

rder

05/

1070

, •

if su

bjec

t to

anot

her l

icen

sing

exc

eptio

n (e

.g a

n In

sure

r pro

vide

s a

finan

cial

ser

vice

to w

hole

sale

clie

nts

with

out n

eedi

ng a

n AF

SL

auth

ority

for t

his

by

way

of a

n ex

cept

ion)

.

Som

e pe

ople

can

ass

ist i

n th

e di

strib

utio

n pr

oces

s w

ithou

t pro

vidi

ng a

fina

ncia

l ser

vice

. The

y ar

e us

ually

cal

led:

• m

ere

refe

rrer

s, a

nd

• cl

erks

& c

ashi

ers.

Indu

stry

wou

ld b

enef

it fro

m c

lear

er g

uida

nce

on th

e ab

ove

two

conc

epts

.

Who

lesa

le c

lient

bus

ines

s ob

ligat

ions

Cur

rent

ly in

sure

rs w

hich

are

APR

A re

gula

ted

do n

ot n

eed

an A

FSL

auth

oris

atio

n fo

r who

lesa

le c

lient

bus

ines

s. In

sura

nce

brok

ers

need

an

AFSL

for r

etai

l and

w

hole

sale

clie

nt b

usin

ess.

For w

hole

sale

clie

nt b

usin

ess

insu

ranc

e br

oker

s ha

ve to

com

ply

with

:

• ge

nera

l lic

ensi

ng c

ondi

tions

: o

do

all

thin

gs n

eces

sary

to e

nsur

e th

at th

e fin

anci

al s

ervi

ces

cove

red

by th

e lic

ence

are

pro

vide

d ef

ficie

ntly

, hon

estly

and

fairl

y; a

nd

o

have

in p

lace

ade

quat

e ar

rang

emen

ts fo

r the

man

agem

ent o

f con

flict

s of

inte

rest

that

may

aris

e w

holly

, or p

artia

lly, i

n re

latio

n to

act

iviti

es

unde

rtake

n by

the

licen

see

or a

repr

esen

tativ

e of

the

licen

see

in th

e pr

ovis

ion

of fi

nanc

ial s

ervi

ces

as p

art o

f the

fina

ncia

l ser

vice

s bu

sine

ss o

f th

e lic

ense

e or

the

repr

esen

tativ

e; a

nd

o

com

ply

with

the

cond

ition

s on

the

licen

ce; a

nd

o

com

ply

with

the

finan

cial

ser

vice

s la

ws;

and

o

ta

ke re

ason

able

ste

ps to

ens

ure

that

its

repr

esen

tativ

es c

ompl

y w

ith th

e fin

anci

al s

ervi

ces

law

s; a

nd

o

have

ava

ilabl

e ad

equa

te re

sour

ces

(incl

udin

g fin

anci

al, t

echn

olog

ical

and

hum

an re

sour

ces)

to p

rovi

de th

e fin

anci

al s

ervi

ces

cove

red

by th

e lic

ence

and

to c

arry

out

sup

ervi

sory

arr

ange

men

ts; a

nd

6

o

mai

ntai

n th

e co

mpe

tenc

e to

pro

vide

thos

e fin

anci

al s

ervi

ces;

and

o

en

sure

that

its

repr

esen

tativ

es a

re a

dequ

atel

y tra

ined

, and

are

com

pete

nt, t

o pr

ovid

e th

ose

finan

cial

ser

vice

s; a

nd

o

have

ade

quat

e ris

k m

anag

emen

t sys

tem

s.

• th

e ge

nera

l con

sum

er p

rote

ctio

n pr

ovis

ions

rela

ting

to m

isle

adin

g an

d de

cept

ive

cond

uct.

No

spec

ific

disc

losu

re o

blig

atio

ns a

pply

like

thos

e th

at d

o in

re

latio

n to

reta

il cl

ient

s.

Gen

eral

ly th

ere

are

no is

sues

rega

rdin

g th

e ab

ove.

Aut

horis

ed re

pres

enta

tive

actin

g fo

r ins

uran

ce b

roke

r

S91

6D p

rohi

bits

a li

cens

ee a

ctin

g as

an

AR o

f ano

ther

lice

nsee

unl

ess

unde

r bin

der (

s916

E).

The

prov

isio

n do

es n

ot re

flect

the

inte

nt o

f the

legi

slat

ion

and

ASIC

has

sin

ce p

rovi

ded

spec

ific

relie

f on

an a

pplic

atio

n ba

sis.

The

bas

is fo

r thi

s re

lief c

ould

be

inco

rpor

ated

in th

e le

gisl

atio

n.

The

rece

nt F

ull F

eder

al C

ourt

deci

sion

of A

CE

V T

RIF

UN

OV

SK

I has

sig

nific

ant i

mpl

icat

ions

for t

he fi

nanc

ial s

ervi

ces

indu

stry

The

cas

e in

volv

ed a

utho

rised

re

pres

enta

tives

of a

n in

sura

nce

com

pany

who

wer

e en

gage

d as

inde

pend

ent c

ontra

ctor

s, b

ut w

ere

foun

d by

the

Cou

rt to

be

empl

oyee

s. A

key

reas

on fo

r the

de

cisi

on w

as th

e ex

tent

of t

he c

ontro

l whi

ch th

e in

sure

r was

foun

d to

hav

e ex

erte

d ov

er th

e au

thor

ised

repr

esen

tativ

es.

Giv

en th

e re

quire

men

ts to

mon

itor,

train

and

ove

rsee

aut

horis

ed re

pres

enta

tives

set

out

in th

e C

orpo

ratio

ns A

ct a

nd a

risin

g as

par

t of t

he im

plem

enta

tion

of th

e FO

FA re

form

s, th

e ef

fect

of t

he d

ecis

ion

mak

es it

pra

ctic

ally

impo

ssib

le to

stru

ctur

e an

d ac

hiev

e in

divi

dual

inde

pend

ent c

ontra

ctor

rela

tions

hips

as

oppo

sed

to

empl

oyee

rela

tions

hips

with

in th

e re

gula

ted

finan

cial

ser

vice

s in

dust

ry.

This

is c

ontra

ry to

the

inte

nded

out

com

es o

f the

legi

slat

ure

in im

posi

ng c

ontro

l req

uire

men

ts fo

r aut

horis

ed re

pres

enta

tives

– n

amel

y to

ens

ure

stan

dard

s of

co

mpe

tenc

y an

d ac

coun

tabi

lity

in th

e se

ctor

, ulti

mat

ely

for t

he p

urpo

ses

of p

rom

otin

g co

nsum

er p

rote

ctio

n; n

ot to

man

date

the

lega

l cha

ract

er o

f prin

cipa

l and

ag

ent r

elat

ions

hips

. The

dec

isio

n cr

eate

s si

gnifi

cant

unc

erta

inty

ove

r the

cha

ract

eris

atio

n of

pas

t, ex

istin

g an

d fu

ture

inde

pend

ent c

ontra

ctor

arr

ange

men

ts. I

t co

uld

have

sig

nific

ant a

dver

se fi

nanc

ial c

onse

quen

ces

whe

re a

s a

resu

lt of

the

deci

sion

, ind

epen

dent

con

tract

or re

latio

nshi

ps a

re re

-cha

ract

eris

ed a

s em

ploy

ee

rela

tions

hips

. Reg

ulat

ory

clar

ity o

f the

issu

e is

pre

ferr

ed w

here

pos

sibl

e.

Ser

vice

com

pany

issu

e e.

g a

Lice

nsee

use

s a

serv

ice

com

pany

that

em

ploy

s its

repr

esen

tativ

es. T

he la

w te

chni

cally

cou

ld re

quire

the

serv

ice

com

pany

to h

ave

an A

FSL

but t

his

was

pro

babl

y no

t the

inte

nt if

it p

lays

no

role

in th

e pr

ovis

ion

of fi

nanc

ial s

ervi

ces

othe

r tha

n by

pro

vidi

ng u

se o

f its

em

ploy

ees

to th

e en

tity

prov

idin

g fin

anci

al s

ervi

ces.

Whi

lst A

SIC

has

sou

ght t

o cl

arify

the

mat

ter t

his

coul

d be

impr

oved

on

to h

elp

avoi

d lim

it un

certa

inty

and

inco

nsis

tent

mar

ket

prac

tices

.

Gen

eral

Insu

ranc

e D

istr

ibut

or C

O 0

5/10

70 a

ctin

g fo

r ins

uran

ce b

roke

r

No

issu

es. E

xam

ple

of o

ne s

ize

fits

all p

ost i

mpl

emen

tatio

n fix

.

Lice

nsee

act

ing

for i

nsur

ance

bro

ker u

nder

ow

n A

FSL

No

issu

es o

ther

than

som

e un

certa

inty

rega

rdin

g Ac

t’s im

posi

tion

of li

abilit

y fo

r “re

pres

enta

tives

” in

such

circ

umst

ance

s w

hich

cou

ld b

e be

tter c

larif

ied.

.

7

Gen

eral

Lic

ensi

ng O

blig

atio

ns

An in

sura

nce

brok

er m

ust m

eet c

erta

in g

ener

al li

cens

ing

cond

ition

s.

No

issu

es w

ith g

ener

al c

ondi

tions

. Tr

aini

ng

RG

146

set

s ou

t ASI

C’s

pos

ition

rega

rdin

g tra

inin

g. T

here

are

new

AS

IC tr

aini

ng p

ropo

sals

that

are

of r

eal c

once

rn to

NIB

A an

d th

is is

a s

igni

fican

t are

a th

at

need

s to

be

cons

ider

ed c

aref

ully

and

not

be

mad

e su

bjec

t to

a on

e si

ze fi

ts a

ll m

odel

.

Obl

igat

ion

on a

n in

sura

nce

brok

er to

not

ify s

igni

fican

t bre

ache

s If

an in

sura

nce

brok

er fo

rms

the

view

that

ther

e is

a s

igni

fican

t bre

ach

it m

ust r

epor

t thi

s to

ASI

C w

ithin

10

busi

ness

day

s af

ter b

ecom

ing

awar

e of

the

brea

ch o

r lik

ely

brea

ch. N

on-s

igni

fican

t bre

ache

s m

ust b

e re

cord

ed in

the

brea

ch re

gist

er. A

SIC

has

pro

vide

d gu

idan

ce o

n w

hat i

s si

gnifi

cant

but

ulti

mat

ely

it is

a

subj

ectiv

e ca

ll.

No

issu

es w

ith th

is o

r ASI

C’s

app

roac

h to

dat

e.

Liab

ility

for r

epre

sent

ativ

es

The

Act i

mpo

ses

stric

t lia

bilit

y on

lice

nsee

s fo

r the

act

s of

thei

r rep

rese

ntat

ives

whe

ther

with

in o

r out

side

thei

r sco

pe o

f aut

horit

y su

bjec

t to

certa

in c

arve

out

s.

The

rule

s th

at a

pply

(e.g

rega

rdin

g cl

ass

of in

sura

nce

dist

inct

ion)

can

cre

ate

an u

nfai

r end

resu

lt in

cer

tain

cas

es th

at s

houl

d be

fixe

d.

http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s9.html#business_day

8

RET

AIL

CLI

ENT

PRO

TEC

TIO

NS

Ther

e ar

e sp

ecia

l rul

es th

at a

pply

in re

latio

n to

cus

tom

ers

who

are

“ret

ail c

lient

s” a

s ex

plai

ned

earli

er.

Fina

ncia

l Ser

vice

s G

uide

(FSG

) req

uire

men

ts

Fina

ncia

l ser

vice

s lic

ense

es a

nd a

utho

rised

repr

esen

tativ

es w

ho p

rovi

de fi

nanc

ial s

ervi

ces

to re

tail

clie

nts

are

requ

ired

to g

ive

thos

e re

tail

clie

nts

a Fi

nanc

ial

Serv

ices

Gui

de (F

SG) u

nles

s an

exc

eptio

n ap

plie

s.

The

purp

ose

of th

e FS

G is

to e

nsur

e th

at re

tail

clie

nts

rece

ive

key

info

rmat

ion

abou

t the

type

of s

ervi

ces

bein

g of

fere

d by

a li

cens

ee o

r an

auth

oris

ed

repr

esen

tativ

e (A

R).

In re

ality

it is

que

stio

nabl

e w

heth

er th

e FS

G s

erve

s an

y us

eful

pur

pose

giv

en in

mos

t cas

es it

prin

cipa

lly te

lls a

cus

tom

er:

• th

e br

oker

can

pro

vide

a s

ervi

ce fo

r the

m o

r for

the

insu

rer;

• th

e br

oker

may

pro

vide

fact

ual i

nfor

mat

ion,

gen

eral

adv

ice,

per

sona

l adv

ice

or a

com

bina

tion

of a

ll th

ree;

•

may

be

rem

uner

ated

in a

num

ber o

f way

s;

• is

sub

ject

to c

ompe

nsat

ion

requ

irem

ents

and

an

IDR

/ED

R s

chem

e.

On

rece

ivin

g it

the

cust

omer

is a

war

e of

wha

t MA

Y oc

cur b

ut n

ot w

hat W

ILL

occu

r.

This

is b

ecau

se th

e FS

G m

ust b

e gi

ven

to th

e cl

ient

as

soon

as

prac

ticab

le a

fter i

t bec

omes

app

aren

t to

the

prov

idin

g en

tity

that

the

finan

cial

ser

vice

will

be,

or

is li

kely

to b

e, p

rovi

ded

to th

e cl

ient

, and

mus

t in

any

even

t be

give

n to

the

clie

nt b

efor

e th

e fin

anci

al s

ervi

ce is

pro

vide

d. T

his

test

is n

ot a

s cl

ear a

s it

coul

d be

. Se

e la

ter f

or d

eliv

ery

issu

es.

Ulti

mat

ely

the

cust

omer

is to

ld b

y th

e br

oker

wha

t app

lies

to th

em in

oth

er d

ocum

enta

tion.

The

FSG

doe

sn’t

add

any

real

pro

tect

ion

that

the

old

oblig

atio

ns in

the

IABA

to g

ive

writ

ten

notic

e of

cer

tain

thin

gs b

efor

e or

at t

he ti

me

the

cont

ract

was

ent

ered

in

to d

idn’

t. Th

e FS

G a

chie

ves

cons

iste

ncy

of fo

rm o

f del

iver

y of

bas

ic in

form

atio

n bu

t pro

babl

y lit

tle e

lse

and

may

affe

ct in

nova

tion.

Con

side

ratio

n sh

ould

be

give

n to

an

alte

rnat

ive

mod

el w

here

a s

tand

ard

form

of d

iscl

osur

e/ed

ucat

ion

tool

for c

usto

mer

s co

uld

be re

ferr

ed to

sav

ing

brok

ers

mon

ey a

nd le

avin

g th

em to

dis

clos

e th

e ac

tual

arr

ange

men

t in

thei

r oth

er d

ocum

ents

as

part

of th

e no

rmal

dis

tribu

tion

proc

ess.

A pe

rson

doe

s no

t hav

e to

pro

vide

an

FSG

in c

erta

in c

ircum

stan

ces.

The

time

criti

cal e

xcep

tion

shou

ld b

e co

nsid

ered

as

it co

uld

be m

ade

mor

e pr

actic

able

.

it do

es n

ot s

eem

fair

for i

nsur

ers

to h

ave

an F

SG e

xcep

tion

if on

ly is

suin

g a

prod

uct w

hen

insu

ranc

e br

oker

s ha

ve to

giv

e on

e if

they

are

onl

y pr

ovid

ing

an

issu

ing

only

ser

vice

for a

n in

sure

r. A

ll is

sue

only

/arr

angi

ng a

gent

s sh

ould

not

hav

e to

giv

e an

FSG

as

it ad

ds li

mite

d va

lue.

Key

info

rmat

ion

coul

d in

stea

d be

9

prov

ided

in a

noth

er fo

rm th

at m

akes

it c

lear

for e

xam

ple

that

the

agen

t doe

s no

t act

of t

he c

usto

mer

, act

s fo

r the

insu

rer,

only

pro

vide

s ge

nera

l adv

ice

and

is

rem

uner

atio

n fo

r a s

ucce

ssfu

l sal

e.

The

seco

ndar

y se

rvic

e pr

ovid

er F

SG c

arve

out

sho

uld

be b

ette

r cla

rifie

d in

the

legi

slat

ion

to a

void

con

fusi

on.

10

G

ener

al A

dvic

e W

arni

ng re

quire

men

ts

A pr

ovid

ing

entit

y (w

hich

is e

ither

a li

cens

ee o

r an

AR) w

ho is

pro

vidi

ng g

ener

al a

dvic

e m

ust w

arn

the

reta

il cl

ient

that

:

• th

e ad

vice

has

bee

n pr

epar

ed w

ithou

t tak

ing

acco

unt o

f the

clie

nt's

obj

ectiv

es, f

inan

cial

situ

atio

n or

nee

ds; a

nd

•

beca

use

of th

at, t

he c

lient

sho

uld,

bef

ore

actin

g on

the

advi

ce, c

onsi

der t

he a

ppro

pria

tene

ss o

f the

adv

ice,

hav

ing

rega

rd to

the

clie

nt's

obj

ectiv

es,

finan

cial

situ

atio

n an

d ne

eds;

and

• if

the

advi

ce re

late

s to

the

acqu

isiti

on, o

r pos

sibl

e ac

quis

ition

, of a

par

ticul

ar fi

nanc

ial p

rodu

ct—

the

clie

nt s

houl

d ob

tain

a P

rodu

ct D

iscl

osur

e St

atem

ent

rela

ting

to th

e pr

oduc

t and

cons

ider

the

Stat

emen

t bef

ore

mak

ing

any

deci

sion

abo

ut w

heth

er to

acq

uire

the

prod

uct.

Gen

eral

ly, w

arni

ngs

mus

t acc

ompa

ny a

ll ge

nera

l adv

ice

rega

rdle

ss o

f the

med

ium

use

d to

pro

vide

that

adv

ice

but s

houl

d be

giv

en b

y th

e sa

me

mea

ns a

s th

e ge

nera

l adv

ice

is g

iven

.

In A

SIC

’s v

iew

, pro

vidi

ng e

ntiti

es w

ill m

eet t

his

oblig

atio

n w

here

they

con

vey

the

subs

tanc

e of

s94

9A(2

) in

a w

ay th

at is

like

ly to

resu

lt in

clie

nts

unde

rsta

ndin

g th

e m

essa

ge

ASIC

ack

now

ledg

es th

at it

is g

ood

prac

tice

for p

rovi

ding

ent

ities

to d

evel

op th

eir o

wn

wor

ding

to m

ake

thei

r gen

eral

adv

ice

war

ning

s m

ore

mea

ning

ful t

o cl

ient

s.

Ther

e is

cla

ss o

rder

relie

f fro

m th

e ge

nera

l adv

ice

war

ning

requ

irem

ent w

hen

a pe

rson

giv

es o

ral g

ener

al a

dvic

e to

reta

il cl

ient

s, a

nd p

rovi

de a

sim

plifi

ed o

ral

war

ning

. A

war

ning

onl

y ne

eds

to b

e gi

ven

once

in a

ny te

leph

one

conv

ersa

tion

or fa

ce-to

-face

mee

ting

whe

re g

ener

al a

dvic

e is

pro

vide

d to

a re

tail

clie

nt.

This

is p

roba

bly

one

of th

e m

ost s

igni

fican

t for

ms

of w

arni

ng fo

r ins

uran

ce b

roke

rs w

ho w

on’t

give

per

sona

l adv

ice.

Giv

en th

e im

porta

nce

of u

nder

stan

ding

the

inhe

rent

lim

itatio

ns o

f gen

eral

adv

ice

cons

ider

atio

n sh

ould

be

give

n to

whe

ther

the

GAW

pro

perly

del

iver

s th

is k

ey

mes

sage

to c

onsu

mer

s.

Stat

emen

t of A

dvic

e/R

ecor

d of

Adv

ice

A lic

ense

e or

an

AR

of a

lice

nsee

pro

vidi

ng p

erso

nal a

dvic

e to

reta

il cl

ient

s m

ust g

ive

them

a S

tate

men

t of A

dvic

e (o

r Sta

tem

ent o

f Add

ition

al A

dvic

e) th

at m

eets

ce

rtain

con

tent

requ

irem

ents

.

Ther

e ar

e 3

mai

n ca

rve

outs

from

the

requ

irem

ents

to is

sue

an S

OA

to a

reta

il cl

ient

.

• Th

e fir

st is

whe

re th

e ad

vice

rela

tes

to a

gen

eral

insu

ranc

e pr

oduc

t (ex

cept

for a

dvic

e ab

out s

ickn

ess

and

acci

dent

or c

onsu

mer

cre

dit i

nsur

ance

).

• Th

e se

cond

is w

here

the

advi

ce d

oes

not r

ecom

men

d th

e ac

quis

ition

or d

ispo

sal o

f any

spe

cific

fina

ncia

l pro

duct

• Th

e th

ird is

in th

e ca

se o

f fur

ther

adv

ice.

Whe

re a

n in

sura

nce

brok

er d

oes

not g

ive

the

clie

nt a

n SO

A un

der t

he s

econ

d or

third

exc

eptio

n, th

ey n

eed

to k

eep

a re

cord

as

requ

ired

unde

r the

Act

.

11

W

here

a S

OA

exce

ptio

n ap

plie

s th

e cl

ient

mus

t ins

tead

, whe

n, o

r as

soon

as

prac

ticab

le a

fter,

the

advi

ce is

pro

vide

d, b

e gi

ven

certa

in s

peci

fied

info

rmat

ion

that

w

ould

be

requ

ired

to b

e in

the

Sta

tem

ent o

f Adv

ice

ie th

e re

mun

erat

ion

SOA

info

rmat

ion

cont

ent a

nd S

OA

info

rmat

ion

abou

t any

oth

er in

tere

sts

and

that

mig

ht

reas

onab

ly b

e ex

pect

ed to

be

or h

ave

been

cap

able

of i

nflu

enci

ng th

e pr

ovid

ing

entit

y in

pro

vidi

ng th

e ad

vice

.

ther

e ar

e no

maj

or c

once

rns

with

the

curr

ent S

OA

requ

irem

ents

alth

ough

con

side

ratio

n of

whe

ther

CC

I sho

uld

requ

ire a

SO

A sh

ould

be

reco

nsid

ered

.

Prod

uct D

iscl

osur

e St

atem

ent (

PDS)

Req

uire

men

ts

An in

sure

r, as

the

issu

er o

f the

insu

ranc

e pr

oduc

t mus

t pre

pare

a P

DS

for a

ll re

tail

clie

nt in

sura

nce.

The

PDS

is th

e do

cum

ent d

esig

ned

to p

rovi

de th

e re

tail

clie

nt w

ith c

erta

in k

ey in

form

atio

n th

at is

des

igne

d to

hel

p th

em m

ake

a de

cisi

on a

bout

whe

ther

to b

uy

the

prod

uct o

r not

and

to c

ompa

re it

with

oth

er p

rodu

cts.

An In

sure

r mus

t giv

e a

pers

on a

PD

S if

an In

sure

r offe

rs to

issu

e th

e in

sura

nce

prod

uct t

o th

e pe

rson

or t

he in

sura

nce

prod

uct i

s or

is to

be

issu

ed to

the

pers

on

as a

reta

il cl

ient

. Ins

uran

ce b

roke

rs w

ill ty

pica

lly p

rovi

de it

to th

eir i

nsur

ed c

lient

s an

d re

ceiv

ed th

em fr

om in

sure

rs.

Mak

ing

sure

the

PDS

pro

vide

d is

the

mos

t up

to d

ate

vers

ion

is a

key

risk

for i

nsur

ance

bro

kers

.

It is

wel

l ack

now

ledg

ed c

onsu

mer

s do

not

read

the

PDS.

It h

as im

prov

ed in

sure

r dra

fting

pra

ctic

es in

cer

tain

resp

ects

but

in re

ality

the

duty

of u

tmos

t goo

d fa

ith

and

IC A

ct p

rote

ctio

ns a

re v

ery

high

. The

mai

n PD

S ri

sk fo

r ins

urer

s is

the

clea

r con

cise

and

effe

ctiv

e co

nten

t req

uire

men

t whi

ch is

of c

ours

e su

bjec

tive.

Ther

e ar

e ce

rtain

PD

S ex

cept

ions

, the

mos

t sig

nific

ant b

eing

the

time

criti

cal e

xcep

tion.

It is

wor

th re

visi

ting

thes

e ex

cept

ions

as

ASI

C h

as p

rovi

de re

lief,

espe

cial

ly in

rela

tion

to q

uote

s be

caus

e of

the

limite

d sc

ope

of th

e ex

cept

ions

.

In re

latio

n to

the

PD

S co

nten

t (of

not

e):

• A

PD

S m

ust i

nclu

de in

form

atio

n ab

out a

ny s

igni

fican

t ben

efits

to w

hich

a h

olde

r of t

he p

rodu

ct w

ill or

may

bec

ome

entit

led,

the

circ

umst

ance

s in

whi

ch

and

times

at w

hich

thos

e be

nefit

s w

ill o

r may

be

prov

ided

, and

the

way

in w

hich

thos

e be

nefit

s w

ill or

may

be

prov

ided

. Thi

s is

ver

y su

bjec

tive

and

has

alw

ays

been

an

issu

e.

•

The

dolla

r dis

clos

ure

requ

irem

ents

are

ove

rly c

ompl

ex a

nd n

eed

to a

ddre

ss te

chni

cal g

aps

iden

tifie

d. th

e C

las

Ord

er re

lief h

as a

num

ber o

f gap

s th

at

can

be ti

died

up.

• W

hat d

oes

the

clie

nt h

ave

to p

ay –

the

cont

ent r

equi

rem

ents

her

e ca

n be

impr

oved

as

they

ser

ve li

ttle

usef

ul p

urpo

se in

real

ity.

•

For a

gen

eral

insu

ranc

e pr

oduc

t PD

S, y

ou m

ust i

nclu

de:

o

th

e te

rms

and

cond

ition

s of

the

polic

y do

cum

ent b

eing

term

s an

d co

nditi

ons

that

are

not

pro

vide

d in

a S

ched

ule

to th

e po

licy

docu

men

t [Th

is is

ex

trem

ely

uncl

ear a

s a

conc

ept];

and

12

o

info

rmat

ion

that

, if t

he is

suer

is s

eeki

ng to

rely

on

subs

ectio

n 35

(2) a

nd s

37 o

f the

Insu

ranc

e C

ontra

cts

Act,

the

issu

er w

ould

hav

e ha

d to

pr

ovid

e to

the

insu

red

befo

re th

e co

ntra

ct o

f ins

uran

ce w

as e

nter

ed in

to.

•

Info

rmat

ion

abou

t the

dis

pute

reso

lutio

n sy

stem

that

cov

ers

com

plai

nts

by h

olde

rs o

f the

pro

duct

and

abo

ut h

ow th

at s

yste

m m

ay b

e ac

cess

ed. T

he

amou

nt o

f inf

orm

atio

n re

quire

d is

ope

n to

deb

ate

– A

SIC

is ta

king

the

view

that

full

FOS

cont

act d

etai

ls a

re re

quire

d.

•

Fina

ncia

l Cla

ims

Sche

me

info

rmat

ion

– Th

is is

com

plet

ely

poin

tless

for a

con

sum

er.

•

Coo

ling

off p

erio

d –

No

sign

ifica

nt is

sues

iden

tifie

d.

•

Con

sum

er C

redi

t Ins

uran

ce P

rodu

cts

– no

con

cern

s w

ith s

peci

al d

iscl

osur

e re

quire

men

ts. N

IBA

note

s AS

IC h

as a

nd is

con

duct

ing

a re

view

on

CC

I and

ot

her a

dd o

n pr

oduc

ts.

•

UFI

spe

cial

not

ice

requ

irem

ents

– n

o co

ncer

ns w

ith c

onte

nt re

quire

men

ts.

A su

pple

men

tary

PD

S co

ntai

ning

upd

ated

info

rmat

ion

may

be

give

n w

ith a

PD

S th

at h

as b

ecom

e ou

t of d

ate.

No

issu

es w

ith S

PDS

proc

ess.

Ke

epin

g a

PDS

up to

dat

e –

No

maj

or is

sues

rais

ed w

ith th

e ob

ligat

ions

in th

is re

gard

.

Del

iver

y of

FSG

and

PD

S

The

way

s of

giv

ing

an F

SG (o

r whe

re a

pplic

able

, the

info

rmat

ion

that

nee

ds to

be

oral

ly g

iven

) is

the

sam

e as

for a

PD

S. I

t can

be

give

n (in

prin

ted

or e

lect

roni

c fo

rm o

r as

oral

info

rmat

ion)

:

• to

the

clie

nt, o

r to

the

clie

nt’s

age

nt, p

erso

nally

or o

rally

(as

appl

icab

le);

or

• se

nt to

the

clie

nt, o

r the

clie

nt’s

age

nt, a

t an

addr

ess

(incl

udin

g an

ele

ctro

nic

addr

ess)

or f

ax n

umbe

r nom

inat

ed b

y th

e cl

ient

or t

he c

lient

’s a

gent

; or

• ot

herw

ise

mad

e av

aila

ble

to th

e cl

ient

, or t

he c

lient

’s a

gent

, as

agre

ed b

etw

een

the

clie

nt, o

r the

clie

nt’s

age

nt, a

nd th

e pr

ovid

ing

entit

y. T

his

met

hod

of

deliv

ery

can

only

be

relie

d w

here

the

met

hod

the

prov

idin

g en

tity

has

chos

en is

suc

h th

at it

has

reas

onab

le g

roun

ds to

be

satis

fied

that

the

clie

nt h

as

actu

ally

rece

ived

the

FSG

.

If a

prov

idin

g en

tity

relie

s on

the

“mak

e av

aila

ble”

opt

ion,

ASI

C s

tate

s th

at a

s a

mat

ter o

f goo

d pr

actic

e, th

e pr

ovid

ing

entit

y sh

ould

:

• en

sure

that

the

clie

nt h

as p

ositi

vely

agr

eed

to h

avin

g th

e FS

G m

ade

avai

labl

e by

that

mea

ns; a

nd

• ta

ke re

ason

able

ste

ps to

ens

ure

that

the

FSG

will

in fa

ct b

e re

adily

ava

ilabl

e to

the

clie

nt b

y th

at m

eans

.

http://www.austlii.edu.au/au/legis/cth/consol_act/ica1984220/s35.html

http://www.austlii.edu.au/au/legis/cth/consol_act/ica1984220/s37.html

13

An

FSG

can

be

mad

e av

aila

ble

to th

e cl

ient

, or t

he c

lient

’s a

gent

, as

agre

ed b

etw

een

the

clie

nt, o

r the

clie

nt’s

age

nt, a

nd th

e pr

ovid

ing

entit

y, b

y m

akin

g it

avai

labl

e on

a w

ebsi

te th

at is

mai

ntai

ned

by o

r on

beha

lf of

the

prov

idin

g en

tity

and

givi

ng a

not

ice,

in p

rinte

d or

ele

ctro

nic

form

, to

the

clie

nt, o

r the

clie

nt’s

ag

ent,

that

it is

ava

ilabl

e on

the

web

site

.

An F

SG in

ele

ctro

nic

form

sho

uld

as fa

r as

prac

ticab

le b

e gi

ven

in a

way

that

will

allo

w th

e re

cipi

ent t

o m

aint

ain

a co

py o

f the

m s

o th

at th

ey c

an b

e ac

cess

ed in

th

e fu

ture

. FSG

that

is g

iven

ele

ctro

nica

lly m

ust a

lso

be c

lear

ly id

entif

iabl

e fro

m o

ther

info

rmat

ion

so th

at th

e re

cipi

ent o

f the

info

rmat

ion

is n

ot c

onfu

sed,

for

exam

ple,

abo

ut w

hat i

nfor

mat

ion

is a

nd is

not

par

t of a

fina

ncia

l ser

vice

s gu

ide.

Not

e th

at th

e FS

G c

an o

nly

be g

iven

or s

ent t

o th

e cl

ient

’s a

gent

if th

e ag

ent i

s no

t act

ing

in o

ne o

f the

follo

win

g ca

paci

ties:

• a

Lice

nsee

; •

an A

R o

f a L

icen

see;

•

a pe

rson

who

is n

ot re

quire

d to

hol

d an

AFS

L un

der t

he A

ct o

r oth

er a

pplic

able

exe

mpt

ions

; •

a pe

rson

who

is re

quire

d to

hol

d an

AFS

L bu

t who

doe

s no

t hol

d an

AFS

L;

• an

em

ploy

ee, d

irect

or o

r oth

er re

pres

enta

tive

of a

per

son

refe

rred

abo

ve.

This

can

cre

ate

tech

nica

l iss

ues

whe

re a

n in

sure

r FSG

is p

rovi

ded

to th

e br

oker

lice

nsee

act

ing

as a

gent

for t

he c

lient

. Thi

s ca

nnot

hav

e be

en th

e in

tent

.

14

C

onfir

mat

ion

of tr

ansa

ctio

ns re

quire

men

ts

The

Act r

equi

res

certa

in tr

ansa

ctio

ns in

volv

ing

reta

il cl

ient

s to

be

conf

irmed

by

the

prod

uct i

ssue

r (ie

insu

rer o

r its

age

nt) a

s so

on a

s re

ason

ably

pra

ctic

able

afte

r th

e tra

nsac

tion

occu

rs in

acc

orda

nce

with

the

proc

edur

e se

t out

in s

ectio

n 10

17F.

No

sign

ifica

nt is

sues

iden

tifie

d.

15

C

oolin

g of

f per

iod

requ

irem

ents

In s

umm

ary,

the

cool

ing

off p

rovi

sion

s re

quire

an

Insu

rer t

o gi

ve a

reta

il cl

ient

a ri

ght t

o re

turn

thei

r pol

icy

in c

erta

in c

ircum

stan

ces.

Of n

ote

is th

e fa

ct th

at a

righ

t to

retu

rn a

pol

icy

for a

n ev

ent t

hat w

ill st

art a

nd e

nd w

ithin

the

14 d

ay p

erio

d (a

nd to

hav

e m

oney

pai

d to

acq

uire

the

polic

y re

paid

) ca

nnot

be

exer

cise

d at

any

tim

e af

ter t

he e

nd o

f the

per

iod,

sta

rting

whe

n th

e po

licy

was

pro

vide

d an

d en

ding

on

the

earli

er o

f:

• th

e 14

-day

per

iod;

and

•

the

star

t of t

he e

vent

.

E.g.

: S

hort-

term

trav

el in

sura

nce.

Even

t mea

ns th

e co

mm

ence

men

t of t

he p

roce

ss in

rela

tion

to w

hich

the

risk

insu

ranc

e pr

oduc

t was

ent

ered

into

.

E.g:

• Fo

r ins

uran

ce o

n ho

useh

old

good

s du

ring

rem

oval

, the

com

men

cem

ent o

f loa

ding

a tr

ansp

orta

tion

vehi

cle

is th

e ev

ent.

•

For t

rave

l ins

uran

ce, t

he c

omm

ence

men

t of t

he jo

urne

y is

the

even

t.

The

abov

e st

art o

f the

eve

nt is

not

ent

irely

cle

ar a

nd th

e dr

aftin

g co

uld

be im

prov

ed.

The

reta

il cl

ient

is n

ot a

ble

to e

xerc

ise

the

cool

ing

off r

ight

if th

ey h

ave

exer

cise

d a

pow

er o

r rig

ht u

nder

the

polic

y (e

.g m

ade

a cl

aim

) or t

he p

olic

y ha

s en

ded.

E.

g. if

the

prod

uct i

s a

polic

y co

verin

g a

perio

d of

onl

y on

e w

eek,

the

right

to re

turn

can

not b

e ex

erci

sed

afte

r the

end

of t

hat w

eek.

The

cool

ing

off p

erio

d do

es n

ot a

pply

to:

• in

terim

pol

icie

s; a

nd

• an

y ge

nera

l ins

uran

ce p

rodu

ct th

at is

: o

of

less

than

12

mon

ths

dura

tion;

and

o

a

rene

wal

of a

n ex

istin

g pr

oduc

t on

the

term

s an

d co

nditi

ons

to w

hich

the

prod

uct i

s cu

rren

tly s

ubje

ct (e

.g m

obile

pho

ne m

onth

ly p

olic

ies)

.

The

right

can

be

exer

cise

d in

writ

ing

or e

lect

roni

cally

or b

y te

leph

one

or a

ny o

ther

way

per

mitt

ed b

y an

Insu

rer.

In

sure

rs s

houl

d be

requ

ired

to m

ake

it as

eas

y as

pos

sibl

e. M

inim

um o

blig

atio

ns m

ay b

e w

orth

con

side

ring.

http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s1371.html#right

16

A

nti H

awki

ng re

quire

men

ts

Und

er th

e Ac

t a p

erso

n m

ust n

ot o

ffer f

inan

cial

pro

duct

s fo

r the

issu

e or

sal

e:

• in

the

cour

se o

f, or

•

beca

use

of,

an u

nsol

icite

d m

eetin

g or

tele

phon

e ca

ll.

The

anti-

haw

king

pro

visi

ons

aim

to p

reve

nt p

ress

ure

sellin

g of

pro

duct

s to

reta

il cl

ient

s.

The

anti-

haw

king

pro

visi

ons

only

app

ly to

uns

olic

ited

tele

phon

e ca

lls o

r mee

tings

.

The

anti-

haw

king

pro

visi

ons

do n

ot a

pply

to o

ther

uns

olic

ited

form

s of

com

mun

icat

ion

such

as

emai

ls*,

lette

rs o

r oth

er m

arke

ting

broc

hure

s or

adv

ertis

emen

ts.

The

mai

n is

sue

aris

es in

tele

phon

e sa

les

and

the

need

to g

ive

a PD

S be

fore

the

prod

uct i

s bo

und.

Con

side

ratio

n of

how

the

anti

haw

king

pro

visi

ons

inte

ract

with

the

PDs

deliv

ery

requ

irem

ents

and

exc

eptio

ns is

ope

n to

arg

umen

t and

nee

d to

be

clar

ified

. A

dver

tisin

g

Sect

ion

1018

A of

the

Act p

rovi

des

that

if a

par

ticul

ar fi

nanc

ial p

rodu

ct is

ava

ilabl

e fo

r acq

uisi

tion

by p

erso

ns a

s re

tail

clie

nts

(whe

ther

or n

ot it

is a

lso

avai

labl

e fo

r ac

quis

ition

by

pers

ons

as w

hole

sale

clie

nts)

by

way

of i

ssue

, an

Insu

rer m

ust o

nly:

• ad

verti

se th

e pr

oduc

t; or

•

publ

ish

a st

atem

ent t

hat i

s re

ason

ably

like

ly to

indu

ce p

eopl

e to

acq

uire

the

prod

uct;

if th

e ad

verti

sem

ent o

r sta

tem

ent:

• id

entif

ies

an In

sure

r;

• in

dica

tes

that

a P

rodu

ct D

iscl

osur

e S

tate

men

t for

the

prod

uct i

s av

aila

ble

and

whe

re it

can

be

obta

ined

; and

•

indi

cate

s th

at a

per

son

shou

ld c

onsi

der t

he P

rodu

ct D

iscl

osur

e St

atem

ent i

n de

cidi

ng w

heth

er to

acq

uire

, or t

o co

ntin

ue to

hol

d, th

e pr

oduc

t.

If a

parti

cula

r fin

anci

al p

rodu

ct, o

r pro

pose

d fin

anci

al p

rodu

ct, i

s no

t ava

ilabl

e fo

r acq

uisi

tion

by p

erso

ns a

s re

tail

clie

nts

but i

t is

reas

onab

ly li

kely

that

the

prod

uct

will

beco

me

so a

vaila

ble

(whe

ther

or n

ot it

is, o

r will

also

bec

ome,

ava

ilabl

e fo

r acq

uisi

tion

by p

erso

ns a

s w

hole

sale

clie

nts)

by

way

of a

n In

sure

r mus

t onl

y:

• ad

verti

se th

e pr

oduc

t; or

http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s9.html#financial_product

http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s761a.html#person

http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s761a.html#retail_client


http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s761a.html#wholesale_client


http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s9.html#issue

http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s601raa.html#publish

http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s9.html#statement

http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s9.html#acquire


http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s1013b.html#product_disclosure_statement





http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s9.html#hold




http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s761a.html#retail_client

http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s601raa.html#will




17

•

publ

ish

a st

atem

ent t

hat i

s re

ason

ably

like

ly to

indu

ce p

eopl

e to

acq

uire

the

prod

uct;

if th

e ad

verti

sem

ent o

r sta

tem

ent:

• id

entif

ies

an In

sure

r;

•

indi

cate

s th

at a

Pro

duct

Dis

clos

ure

Sta

tem

ent f

or th

e pr

oduc

t will

be

mad

e av

aila

ble

whe

n th

e pr

oduc

t is

rele

ased

or o

ther

wis

e be

com

es a

vaila

ble;

• in

dica

tes

whe

n an

d w

here

the

Prod

uct D

iscl

osur

e St

atem

ent i

s ex

pect

ed to

be

mad

e av

aila

ble;

and

• in

dica

tes

that

a p

erso

n sh

ould

con

side

r the

Pro

duct

Dis

clos

ure

Stat

emen

t in

deci

ding

whe

ther

to a

cqui

re, o

r con

tinue

to h

old,

the

prod

uct.

In a

dditi

on to

sec

tion

1018

A, d

epen

ding

on

the

type

of a

dver

tisin

g an

d m

etho

d, th

e G

ener

al A

dvic

e W

arni

ng a

nd F

SG c

onte

nt d

iscl

osur

e ob

ligat

ions

can

aris

e to

o.

The

carv

e ou

ts fo

r ful

l dis

clos

ure

coul

d be

reco

nsid

ered

.

http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s601raa.html#publish







http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s1371.html#made


http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s1371.html#made




http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s9.html#hold

18

M

oney

han

dlin

g re

quire

men

ts

Whe

re a

n in

sura

nce

brok

er a

cts

on b

ehal

f of t

he in

sure

d sp

ecia

l rul

es a

pply

.

The

Cor

pora

tions

Act

in P

art 7

.8:

• re

quire

s th

e in

sura

nce

brok

er to

put

any

pre

miu

m re

ceiv

ed fr

om th

e in

sure

d in

to a

spe

cial

trus

t acc

ount

,

• w

here

the

polic

y ha

s be

en e

nter

ed in

to/ri

sk h

as p

asse

d re

ceip

t of p

rem

ium

from

the

insu

red

by th

e in

sura

nce

brok

er is

trea

ted

as re

ceip

t by

an In

sure

r,

• If

the

insu

ranc

e br

oker

doe

sn’t

pay

an In

sure

r, an

Insu

rer m

ust b

ring

a re

cove

ry a

ctio

n ag

ains

t the

insu

ranc

e br

oker

for t

he a

mou

nt o

win

g. a

n In

sure

r can

not

canc

el th

e po

licy

or re

fuse

a c

laim

und

er th

e po

licy

beca

use

of n

on-p

aym

ent b

y th

e in

sura

nce

brok

er in

suc

h ca

ses,

• th

e m

oney

mus

t be

pass

ed to

an

Insu

rer b

y th

e in

sura

nce

brok

er b

y th

e ea

rlier

of t

he:

› tim

e ag

reed

bet

wee

n an

Insu

rer a

nd th

e in

sura

nce

brok

er, a

nd

›

timef

ram

e sp

ecifi

ed in

the

Cor

pora

tions

Act

(usu

ally

90

days

from

rece

ipt w

ith a

lim

ited

exce

ptio

n w

here

not

reas

onab

ly p

ract

icab

le).

Ther

e ar

e m

onet

ary

pena

lties

that

app

ly if

the

insu

ranc

e br

oker

fails

to c

ompl

y.

If an

insu

ranc

e br

oker

has

not

rece

ived

the

prem

ium

with

in th

e re

leva

nt p

erio

d fo

r pay

men

t req

uire

d by

an

Insu

rer o

ther

rule

s ap

ply.

Cla

ims

mon

ey p

aid

by a

n In

sure

r to

an in

sura

nce

brok

er is

not

trea

ted

as b

eing

rece

ived

by

the

insu

red

until

the

insu

ranc

e br

oker

pay

s th

e in

sure

d. T

his

mea

ns

that

if th

e in

sura

nce

brok

er d

oes

not p

ay th

e m

oney

to th

e in

sure

d, a

n In

sure

r mus

t brin

g a

reco

very

act

ion

agai

nst t

he in

sura

nce

brok

er fo

r the

am

ount

ow

ing.

Whe

re th

e in

sura

nce

brok

er re

ceiv

es m

oney

from

, or o

n be

half

of, a

n In

sure

r, fo

r pay

men

t to,

or o

n be

half

of, a

n in

sure

d, th

ey m

ust p

ay th

e m

oney

to th

e in

sure

d:

• w

ithin

sev

en d

ays

(the

rele

vant

per

iod)

afte

r the

y re

ceiv

ed th

e m

oney

, or

•

if it

is n

ot p

ract

icab

le fo

r the

m to

pay

the

amou

nt w

ithin

the

rele

vant

per

iod

– as

soo

n as

pra

ctic

able

afte

r the

end

of t

hat p

erio

d.

The

mon

ey h

andl

ing

requ

irem

ents

, esp

ecia

lly re

latin

g to

mix

ed m

oney

is re

lativ

ely

com

plic

ated

. Th

e 90

day

and

oth

er ru

les

rule

follo

ws

the

old

IABA

rule

s as

do

the

deem

ed re

ceip

t rul

es.

Ther

e ar

e so

me

tech

nica

l iss

ues

that

can

be

fixed

but

not

hing

of a

ny re

al c

once

rn.

submission to the financial system inquiry · submission to the financial system inquiry 2 national...

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