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Insurance Compliance

Regulatory Authorities – there are 2 main authorities that administer financial services laws and oversee the financial services industry. These are:

Australian Prudential Regulation Authority (APRA) – it was established by theAustralian Prudential Regulation Authority Act 1998 (Cwlth) and is responsible for ensuring that financial services businesses have sufficient financial reserves and are managed carefully so that they can fulfill their obligations to customers;

Australian Securities and Investments Commission (ASIC) – it was established under theAustralian Securities and Investments Commission Act 1989 (Cwlth) and regulates financial markets, securities, futures and corporations. ASIC monitors general insurance as it applies to the conduct of general insurers, reinsurers, insurance brokers and underwriting agents through the Corporations Act 2001 (Cwlth) and the Insurance Contracts Act 1984 (Cwlth).

Insurance Industry Legislation:

Insurance Act 1973 (Cwlth) applies to insurers, reinsurers and retrocessionaires and governs the authorisation, solvency and reporting requirements of general insurance companies.

Corporations Act 2001 (Cwlth) appliesto authorised representatives, insurance brokers, underwriting agents and insurers and provides a detailed and integrated system for regulating the entire financial services industry. It also regulates financial services and products and their providers.

Insurance Contracts Act 1973 (Cwlth) appliesto authorised representatives, insurance brokers, underwriting agents and insurers and lays down rules to govern the relationship between the insurers and the insureds to ensure that the insured can make an informed choice as to entering into an insurance contract.

Consumer Credit Code applies to underwriting agents, insurers and premium funders and lays down code of practice for dealing with all types of consumer credit products.

Australian Securities and Investments Commission Act 2001 (Cwlth) applies to appliesto authorised representatives, insurance brokers, underwriting agents and insurers and details how ASIC licensees must comply with the consumer protection provisions.

General Insurance Code or Practice applies to underwriting agents and insurers and sets out service standards and responsibilities of general insurance companies.

Insurance Brokers Code of Practice (replaced the General Insurance Brokers Code of Practice from 1 January 2007) applies to authorised representatives and insurance brokers and outlines professional standards, dispute resolution processes and legal compliance for insurance brokers. The Insurance Brokers Code of Practice was created by the National Insurance Brokers Association of Australia (NIBA) and is administered by Insurance Brokers Disputes Limited (IBD).

Trade Practices Act 1974 (Cwlth) applies to general insurance companies and insurance intermediaries and imposes restrictions on anti-competitive agreements, boycotts and exclusive dealing.

Privacy Act 1998 (Cwlth) dictates how companies must handle personal and sensitive information confidentially and in a secure manner.

Spam Act 2003 (Cwlth) dictates that emails cannot be sent to a recipient unless the sender has permission from the recipient.

National Insurance Brokers Association of Australia (NIBA) is the professional body for insurance intermediaries.

Insurance Brokers Disputes Limited (IBD) is a free consumer service created and designed to handle complaints and resolve problems between insurance brokers, other financial services providers and their clients.

Retail & Wholesale Clients

Under the Corporations Act, clients are categorised as either Retail or Wholesale. Retail Clients are afforded additional protection compared to Wholesale Clients.

Certain information contained in this Financial Services Guide applies to Retail Clients only. Therefore it is important to understand if it applies to you.

A Retail Client is an individual or small business that purchases a prescribed retail insurance product. A small business is one employing less than 20 people or if a manufacturer, less than 100 people. The small business must purchase the insurance for use in connection with the business.

The following are considered to be prescribed retail insurance products:

  • Motor vehicle;
  • Home building;
  • Home contents;
  • Sickness & accident;
  • Consumer credit;
  • Travel;
  • Personal & domestic property;
  • Any other kind of insurance prescribed in the regulations.

All other clients are Wholesale Clients. All products which are not prescribed to be retail are wholesale.

Retail Client Disclosure

The Corporations Act 2001 (Cwlth) imposes certain requirements when dealing with retail clients. These are summarised as follows.

Before any advice is provided the retail client must be provided with a Financial Services Guide (FSG) that includes the following:

· Name and contact details of the provider

· What services the provider is authorised to provide

· Who the provider acts provider acts for and any significant associations

· How the provider will be remunerated

· The dispute resolution process

· If the provider acts under a binder, information about what services will be provided under the binder

Where Personal Advice is given to a retail client on consumer credit or sickness and personal accident insurance then a Statement of Advice (SoA) must be issued. This Statement of Advice must detail the following:

· The client’s circumstances and objectives

· A note about incomplete and inaccurate information

· The basis of the advice

· The provider’s advice

· Details of the provider’s charges

· Important relationships

· The provider’s contact details

For Personal Advice in respect of any other retail products information must be provided about the remuneration or other benefits and any other associations in the form of a Letter of Advice (LoA) or Record of Advice.

No recommendation to purchase an insurance product = No SoA

SoA no longer need to be provided if personal advice does not contain a recommendation to purchase a particular insurance product and the adviser is not remunerated for the advice.

Advisers must still retain a record of their advice - and will need to record in it any benefits that any person will receive arising from the client's decision based on advice and any associations that may have influenced the advice.

Where General Advice is provided to a retail client, a General Advice Warning must be given to the retail client stating that the advice has not taken into account any personal information.  

When a retail client is recommended to acquire a financial product then a Product Disclosure Statement (PDS) must be issued to the retail client. The Product Disclosure Statement (PDS) details information about the particular product being recommended.

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