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ICA says draft product rule regulations fall short

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The Insurance Council of Australia (ICA) will be pushing for further clarity in draft regulations for financial product design and distribution obligations as concerns over the controversial new regime remain.

“The draft design and distribution obligation regulations released yesterday for comment didn’t have anything on the renewals issue that ICA wants addressed,” a spokeswoman told today.

The ICA is in discussion with the Government and other stakeholders and will be putting its case in a submission.

Laws passed in April have sparked concerns over how the rules will apply to mass-marketed products such as home and motor insurance, particularly at renewal time, and have raised questions over potential conflicts of interest for brokers.

National Insurance Brokers Association CEO Dallas Booth says the group will scrutinise the draft regulations and prepare a response.

“We will be looking at them in great detail because this is crucially important for brokers in their role as distributors of products and also crucially important to the broader insurance process,” he told today.

“This process has to work properly and efficiently, and it also has to work in the interests of clients and consumers.”

The obligation aims to crack down on mis-selling of financial products, requiring issuers and distributors to ensure they are only provided to customers for whom they are likely to be suitable.

New product rules were proposed by the Financial System Inquiry in 2015 and work was under way before the Hayne royal commission again put focus on the proposals.

“The regulations reflect the outcomes of consultation on a previous version of the regulations and the extended scope of the obligations as a result of the royal commission,” a statement from Treasurer Josh Frydenberg’s office says.

The laws will be enforced by the Australian Securities and Investments Commission after a transition period that ends in April 2021.

Insurers will have to develop “target market determinations” for products that are sold to consumers.

ICA has previously warned the proposals could affect consumer choice. The renewal process could be unnecessarily lengthened if the obligations are triggered each year.

NIBA earlier this year warned of a potential conflict in broker statutory duties if a policy is clearly in the best interests of a client who falls outside the target market determination.

Submissions on the regulations are due by October 11. More details are available here.