“INSURANCE, n. An ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table.”
— Ambrose Bierce, “THE DEVIL’S DICTIONARY”
No rest for the wicked
With all the focus on Red October and its impact on financial advisers and licensees, it would be easy to imagine that Risk Advisers have been spared the profound changes bedevilling Investment Advisers and Financial Strategies.
It would be easy to think that, but you’d be quite wrong.
There are a number of legislative changes designed to drive profound changes to life insurance practices and we’ll address the main ones in turn.
As background, it’s important to understand that the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 introduced a number of changes, including:
- Claims handling and settling
- Hawking prohibitions
- The deferred sales model
- A new duty of disclosure
- Protections from cancellations.
Claims handling
From January 1 2021, those people that provide insurance claims handling and settling services hold an Australian Financial Services Licence and comply with the general obligations under s912A.
To appreciate the obligations, review ASIC’s guidance and the relevant regulations.
Claims Guide
Hawking Prohibitions
From 5 October 2021, measures to enhance consumer protection apply to unsolicited appeals to buy life insurance products.
The Financial Sector Reform (Hayne Royal Commission Response) Act 2020 Act reformed and extended the hawking prohibition to extend to insurance products and included a statutory right of return for hawked products.
It also defined provided a workable definition of “unsolicited conduct”, that foundation element of hawking, as contact (excluding email contact) that is initiated without the consumer’s “positive, voluntary and clear” consent.
Read RG38
Read CP346
Deferred sales on add-on insurance
The Financial Sector Reform (Hayne Royal Commission Response) Act 2020 saw the introduction of a deferred sales model for the sale of any add-on insurance that institutes a mandatory four-day pause and a cap on commissions.
These requirements also apply from 5 October 2021.
Read RG275
Read cp339
Duty of reasonable care
Another benefit of The Financial Sector Reform (Hayne Royal Commission Response) Act 2020 is the the introduction of a duty to take reasonable care not to make a misrepresentation to an insurer to replace of the previous statutory duty of disclosure (under the Insurance Contracts Act) in consumer insurance contracts.
The Insurer has the onus of proof to show the consumer’s lack of reasonable care.
Incidentally, “consumer insurance contracts” is defined by Section 11AB of the Insurance Contracts Act. It covers those contracts of insurance, including general and life insurance contracts, which are obtained wholly or predominantly for the insured’s personal, domestic or household purposes.
This change applies to consumer insurance contracts that commence, or are varied, on or after 5 October 2021.
Treasury extensively consulted on the change.
Read Explanatory Statement
Read Explanatory Memorandum
Alternatives to Cancellation
The Financial Sector Reform (Hayne Royal Commission Response) Act 2020 also implemented another key consumer protection mechanism.
To prevent Insurers from inappropriately cancelling a contract in circumstances, including non-fraudulent misrepresentation or non-disclosure, where they would still provide coverage, changes were made to the circumstances in which a life insurer may avoid a contract on the basis of non-disclosure or misrepresentation.
In simple terms, an insurer may now only avoid a contract of life insurance on the basis of non-disclosure or misrepresentation if it can show that it would not have entered into a contract on any terms.
Read Explanatory Memorandum
