Home / Analysis / October blitz: Hayne reforms steam ahead
23 August 2021
Another set of Hayne royal commission reforms is set to come into effect in October, building on other changes implemented since the start of the year such as the application of unfair contract terms laws to insurance contracts in April.
Actuarial firm Finity Consulting has prepared an updated timeline of the new measures that the general insurance industry will have to comply with in about six weeks’ time, describing the incoming design and distribution obligations (DDO) regime as “one of the most impactful” changes this year.
When it kicks in on October 5, it will be the responsibility of insurers to ensure products are designed to meet the needs of defined target markets and are distributed appropriately.
The Federal Government will make some last-minute amendments to the DDO regime, after potential unintended consequences and issues were pointed out as financial services firms prepared for the new laws. Treasury says the planned changes are in response to feedback received from stakeholders.
Finity says the regulatory jigsaw puzzle is slowly coming together, with Principal Raj Kanhai telling insuranceNEWS.com.au the changes set the industry up for the future to meet consumer expectations.
Here is the Finity summary of regulatory changes set for October:
Design and distribution obligations (DDO)
When DDO laws take effect on October 5, an affected product cannot be sold unless it has a target market determination in place. Products that usually require a product disclosure statement will be affected by the new regime. The laws are aimed at ensuring product issuers and distributors place consumer needs at the heart of everything they do.
Finity says the inclusion of insurance in the DDO regulations is one of the most impactful changes this year.
The scope of insurance entities and product types captured have kept everyone busy, and more and more target market determinations are appearing online as the October 5 deadline looms, as well as changes to product quote and buying processes to ensure compliance.
Issuers and distributors also need to have their product design, distribution and governance arrangements documented, understood and effective by that date.
Deferred sales model (DSM)
The DSM also comes into effect on October 5, prohibiting the sale of add-on insurance for a mandatory four-day period after a customer has entered into a commitment to acquire the principal product or service.
Finity says the mechanics of the regime have been known for some time, imposing onerous obligations that will require carefully structured selling methods and software.
However, for most of the sector it’s the DSM exemptions rather than the regime itself that are of most interest. Draft regulations released in mid-July provided a long list of exempted products, including compulsory third party, home, travel and comprehensive motor.
Finity expects that only a small number of specialist organisations will sell products under the DSM, meaning limited competition and high prospects for success.
The Australian Securities and Investments Commission (ASIC) is consulting on an updated Regulatory Guide 38, reflecting proposed changes to the anti-hawking provisions under the Corporations Act.
The three existing prohibitions in section 736 are to be consolidated into a single prohibition that now applies to all financial products (including insurance and superannuation).
The updated regulations will also impose stricter requirements around consent, extended coverage to all real-time interactions, and establishing a statutory right of return.
The anti-hawking laws commence on October 5.
Internal Dispute Resolution
ASIC’s updated Regulatory Guide 271 was released last year and establishes new standards and guidelines to be enforced against financial firms from October 5.
In particular, it requires uplift in the way that firms handle complaints and disputes, including an expanded definition of ‘complaints’ (including social media complaints), reduced response deadlines, and new reporting obligations. The existing Regulatory Guide 165 will be repealed in October 2022.
Duty of disclosure
From October 5, the new duty for consumer insurance contracts shifts the onus on to insurers to obtain all necessary information to assess insurability and the premium calculation.
This means that consumers will no longer have to surmise what information may be required by insurers, as is currently the case under the Insurance Contracts Act.
Insurers will need to review the questions routinely asked of potential policyholders at inception/renewal to ensure their sufficiency, and update warning notices to reflect the new duty.
Note that the new duty will not apply to commercial lines, where the onus to provide relevant information remains on the customer (for now).
Click here for the Finity guide.