Is it a set up or setback for the Australian insurance sector?

Well, dealings in the insurance claims value chain are officially Australian financial services, attracting a new and varied Australian Financial Services License (AFSL), as well as obligations for business owners and now licensee’s.

Here’s the thing…

Since the enactment of the Corporations Act in 2002, the claims handling and or settlement of insurance claims was not considered to be an Australian financial service. As such, claims handling service providers didn’t need an Australian Financial Services License (AFSL) to offer them since they were excluded from the AFSL, general licensing or other disclosure requirements.

Owing to the vital role played by claims handling in meeting the pledges made in insurance contracts, this omission came into sharp focus after complaints and misconduct emerged with regards to life and general insurance. 

In response to the Misconduct in the Superannuation, Banking and Financial Services Industry in Australia, Commissioner Hayne at the Royal Commission made recommendations to include claims handling as a financial service.

The Hayne report tabled in Parliament on 10 December 2020 saw the enactment of a legislation to impose new requirements on any dealings with respect to insurance claims handling or settling in the claims value chain.  

Fast Forward to 2022…..

There’s no doubt that the new changes are significant and causing a lot of heat in the insurance sector as claims handlers and insurance companies are expected to take heed of the latest ASIC warnings including claims handling obligations for COVID-19 claims.

Insurance claims handlers were from 1 July 2021, expected to have filed an application with the ASIC for an Australian Financial Services licence (AFSL) that covers claims handling and settlement services, or to have received approval to become a representative of a rightful AFSL holder.

The new regime requires all insurance claims handlers to comply with all obligations due to financial services licensees including being efficient, honest and fair, providing appropriate disclosure to customers, and implementing processes and policies to amicably manage dispute resolutions and conflicts of interest. These requirements are applicable to insurers, brokers, insurance claims managers and other persons who offer claims handling and settling services.

The Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth) (the Act), which came into effect on 1 January 2021, widens the financial services scope under the Corporations Act 2001 (Cth) to include claims handling and settling services.

A person is considered to be providing claims handling and settling services if:

• the person makes a recommendation, or states an opinion, in response to an inquiry by or on behalf of another person about an existing or a potential claim by the other person under an insurance product, or that could reasonably be expected to influence a decision whether to continue with the existing claim or to make the potential claim; or
• the person represents a person insured under an insurance product in pursuing a claim under the product; or
• the person assists another person to make a claim under an insurance product; or
• the person assesses whether an insurer has a liability under an insurance product, or provides assistance in relation to such an assessment; or
• the person makes a decision to accept or reject all or part of a claim under an insurance product; or
• the person quantifies the extent of the insurer’s liability to another person under an insurance product, or provides assistance in relation to the quantification of the extent of such a liability; or
• the person offers to settle all or part of a claim under an insurance product; or
• the person satisfies a liability of the insurer under an insurance product in full or partial settlement of a claim under the insurance product.

When do the changes take affect?

The amendments came into effect starting 30 June 2021, with a 6 months transition period from 1 July 2021 to 31 December being provided in the Act, to allow claims handling and settling services to be offered by only those who have applied for an AFSL and it was either granted or pending.

From 1 January 2022, claims handling and settling services will only be provided by those whose AFSL application was approved by ASIC.

What this means is that claims handling and settling services is now regulated by ASIC and an Australian Financial Services License (AFSL) or an authorised representative (AR, CAR) of a current AFSL holder is now required.

On the other hand, insurers and brokers may have to alter their existing AFSLs to include claims handling and settling services, and revise procedures to ensure all representatives handling and settling claims on their behalf have met all the necessary obligations.

How we can assist

Our experts can evaluate your services and advise you as to whether they fall under the claims handling and settling services, besides discussing the appropriate processes and systems you need to effectively lodge and manage storm damage claims.

HOW TO CHECK IF A COMPANY IS LEGITIMATE

You can easily conduct searches via the regulatory bodies including the ACCC, ASIC, APRA or the QBCC – Depending on the nature.