A proposal to simplify the retail client definition as part of changes to remove financial services regulation complexity could backfire when it comes to general insurance, an industry submission to the Australian Law Reform Commission (ALRC) says.

The Insurance Council of Australia (ICA) says current wordings specifically take into account different types of policies that are sold to consumers and small businesses and a flagged streamlining could lead to a “significant and inappropriate expansion” of the retail definition reach.

“The imposition on business customers, for instance, of retail client protections could be obstructive, for instance if the anti-hawking prohibitions prevented or delayed a discussion about insurance products,” ICA says in a submission.

Falling within the retail client definition triggers greater protections, reflected in design and distribution obligations, anti-hawking restrictions and other conduct rules, and the need to provide product disclosure statements.

Section 761G (5) of the Corporations Act currently says a general insurance product is acquired as a retail client if the person is an individual or a small business and the product is on a list that includes home, motor, travel and several other products.

ICA says products sold to small businesses also include management liability, professional indemnity, cyber and other commercial classes, which may have multiple variants, and applying “retail client” regulation to the full suite “would have a significant impact on the products, their distribution and associated costs”.

The ALRC’s first interim report, tabled at the end of November, called for feedback on a number of proposals and questions including around the retail client definition, which it says has become more significant in recent years with the introduction of the additional protections.

The ALRC will release its next interim report on September 30 as part of a three-year inquiry that will conclude at the end of November 2023.