On November 27, 2020 ASIC released a draft information sheet on insurance claims handling and settling.
This follows the introduction of the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 (‘the Bill’) into Parliament on 12 November 2020. On passage of the Bill, persons providing claims handling and settling services will need to be covered by an Australian Financial Services (AFS) licence, and the general conduct obligations under section 912A of the Corporations Act 2001 (Cth) (‘the Act’) will apply.
Industry participants that will need to get an AFS licence for claims handling and settling or be authorised by another AFS licensee are:
- insurance claims managers
- tradespersons (referred to as ‘insurance fulfilment providers’) who can reject claims on behalf of an insurer
- insurance brokers who handle claims on behalf of an insurer
- financial advisers who handle claims on behalf of an insurer, and
- people that carry on a business of representing people to pursue insurance claims for reward (referred to as ‘claimant intermediaries’).
Entities that already hold an AFS licence will need to apply for a variation to their licence so it covers the new financial service of claims handling and settling.
To assist industry to comply with the timeframes in the Bill, ASIC has released the information sheet in draft form now. This will help give industry participants as much time as possible to consider whether they need to obtain (or vary) an AFS licence, and if so, what they will need to do.
The draft information sheet:
- sets out who needs to be authorised to provide claims handling and settling services for insurance products and who can act on an AFS licensee’s behalf
- explains how and when to apply for an AFS licence, or variation to an existing AFS licence, including materials that are needed to support an application, and
- refers to existing regulatory guidance on how to meet the general obligations under section 912A of the Act, and indicates how the obligations may be tailored to claims handling.
ASIC has also released a draft version of C12 Proof: Claims Handling and Settling Service Statement. Applicants seeking an AFS licence authorisation for claims handling and settling services will be required to supply this statement as part of their application.
ASIC will issue the final information sheet and proof document, incorporating any changes to the legislation during passage of the Bill, ahead of the commencement of the reforms.
ASIC expects to start taking applications for AFS licences, and variations to existing licences, from 1 January 2021 (subject to the Bill’s passage before the end of this year). Applicants are strongly encouraged to submit their applications as soon as possible because:
- during the transition period between 1 July 2021 and 31 December 2021 claims handing and settling services can only be provided if a complete application was lodged by 30 June 2021, and it has either been granted or is still pending, and
- from 1 January 2022 claims handling and settling services can only be provided if the application has been granted.
Applicants can start preparing materials for their application now to allow for timely lodgement as soon as ASIC is able to start taking applications.
In the lead up to the commencement of the reforms, ASIC will continue to engage with industry about their implementation of the new requirements and whether ASIC can provide additional assistance to help industry transition to the new requirements.
Claims handling services have been exempt from the definition of ‘financial service’ under the Act and, therefore, persons providing claims handling services have not been required to hold an AFS licence.
The Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommended that the handling and settling of insurance claims, or potential insurance claims, should no longer be excluded from the definition of ‘financial service’ (Recommendation 4.8).
The passage of the Bill will give effect to Recommendation 4.8.
From time to time, ASIC assists regulated entities to meet their legislative obligations in a timely way by releasing draft guidance and/or draft information sheets in advance of the passage of the relevant legislation.
- Draft INFO 000 Claims handling and settling
- Draft C12 proof on insurance claims handling and settling
© Australian Securities & Investments Commission. Reproduced with permission.