House of Representatives

Financial Sector Reform (Hayne Royal Commission Response) Bill 2020

Corporations (Fees) Amendment (Hayne Royal Commission Response) Bill 2020

Corporations (Fees) Amendment (Hayne Royal Commission Response) Act 2020

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Josh Frydenberg MP)

Chapter 7 - Claims handling and settling services (recommendation 4.8)

Outline of chapter

7.1 Schedule 7 to the Bill amends the Corporations Act to make insurance claims handling and settling (referred to in this chapter as claims handling) a financial service.

Context of amendments

7.2 Chapter 7 of the Corporations Act sets out a regime which regulates financial products and services. The regime requires people who provide financial services to:

hold an Australian financial services licence covering the financial service they provide;
act efficiently, honestly and fairly when providing financial services (among other general obligations in section 912A of the Corporations Act);
provide appropriate disclosure to consumers when providing financial services; and
when providing financial services to retail clients, comply with the general obligation of having an internal dispute resolution process in place and be a member of AFCA.

7.3 Claims handling, which covers activities such as assisting a person to lodge an insurance claim and assessing and settling a claim, is currently excluded from being a financial service by regulation 7.1.33 of the Corporations Regulations 2001. The effect of this exclusion is that people who provide claims handling services are not required to comply with the regulatory regime in Chapter 7 of the Corporations Act.

7.4 A number of independent inquiries have recommended removing the exclusion in regulation 7.1.33 of the Corporations Regulations 2001 and requiring people who provide claims handling services to comply with the regulatory regime in Chapter 7 of the Corporations Act. These inquiries include:

ASIC Report 633 Holes in the safety net: A review of Total and Permanent Disability Insurance Claims, dated 17 October 2019;
the Financial Services Royal Commission;
the report of the Parliamentary Joint Committee on Corporations and Financial Services' inquiry into the Life Insurance Industry, dated 27 March 2018; and
ASIC Report 498 Life insurance claims: An industry review, dated 12 October 2016.

7.5 Recommendation 4.8 of the Financial Services Royal Commission recommends that claims handling should no longer be excluded from the definition of 'financial service' for the purposes of Chapter 7 of the Corporations Act.

7.6 Commissioner Hayne observed that there is no basis for continuing to exclude claims handling (including in relation to potential insurance claims) from the definition of 'financial service' in the Corporations Act. In particular, Commissioner Hayne noted that:

claims handling is as much the provision of a financial service as any other financial service; and
for consumers, the intrinsic value of an insurance product lies in the ability to make a successful claim when an insured event occurs.

7.7 In response to the Financial Services Royal Commission, the Government agreed to implement recommendation 4.8. In March 2019, Treasury released a consultation paper seeking feedback on options to include claims handling in the definition of 'financial service' in the Corporations Act.

Summary of new law

7.8 Schedule 7 makes claims handling a financial service and therefore subject to the regulatory regime in Chapter 7 of the Corporations Act.

7.9 This means that insurers and other people who provide claims handling services for insurers (including certain tradespeople, insurance claims managers, certain insurance brokers and certain financial advisers):

must obtain an Australian financial services licence covering claims handling;
must provide appropriate disclosure to retail clients when offering to settle a general insurance claim using cash payments;
can authorise representatives to provide claims handling services on their behalf;
can continue to appoint service providers, such as tradespeople to fulfil insurance contracts on their behalf;
must ensure insurance claims are handled and settled efficiently, honestly and fairly (whether they handle the claims themselves, or have representatives handle the claim on their behalf); and
when providing claims handling services to retail clients, must have an internal dispute resolution process in place and be a member of AFCA.

7.10 The reforms also mean that people who represent an insured (referred to in this chapter as a consumer) to pursue an insurance claim:

must hold an Australian financial services licence covering claims handling;
must represent the consumer efficiently, honestly and fairly; and
when representing a retail client to pursue an insurance claim, must have an internal dispute resolution process in place, be a member of AFCA and give the client a Financial Services Guide.

Comparison of key features of new law and current law

New law Current law
The following people who provide claims handling services must hold an Australian financial services licence covering claims handling or be authorised by another person with an Australian financial services licence covering claims handling:

insurers;
certain tradespeople;
insurance claims managers;
certain insurance brokers; and
certain financial advisers.

People who provide claims handling services do not need to hold an Australian financial services licence.
Australian financial services licensees with licences covering claims handling must comply with the general obligations in section 912A of the Corporations Act, including the obligation to ensure:

claims are handled efficiently, honestly and fairly;
their representatives are adequately trained and competent to provide claims handling services; and
they have a compliant internal despite resolution process and be a member of AFCA if they provide claims handling services to retail clients.

No equivalent.
Australian financial services licensees who offer to settle a general insurance claim using a cash payment must provide the consumer with a Cash Settlement Fact Sheet if the consumer is a retail client. No equivalent.
People representing a consumer to pursue a claim must hold an Australian financial services licence covering claims handling if they obtain a benefit for that service.

If the consumer is a retail client, the licensee must have a compliant internal dispute resolution system, be a member of AFCA and give a Financial Services Guide to the consumer.

No equivalent.

Detailed explanation of new law

7.11 Schedule 7 makes claims handling a financial service under Chapter 7 of the Corporations Act. [Schedule 7, items 1, 4, 7 and 10, the definition of 'claims handling and settling and settling service' in sections 9, 761A and 766A, and section 766G of the Corporations Act]

7.12 The amendments in Schedule 7 will be supported by regulations to repeal regulation 7.1.33 of the Corporations Regulations 2001, which excludes claims handling from being a financial service.

What is a claims handling service?

7.13 A person will provide a claims handling service if the person:

makes a recommendation or states an opinion that could influence a decision whether to make an insurance claim;
assists another person to make an insurance claim;
assesses whether an insurer is liable under an insurance product;
makes a decision to accept or reject all or part of an insurance claim;
quantifies an insurer's liability under an insurance product;
offers to settle all or part of an insurance claim; or
satisfies a liability of an insurer under an insurance claim.

[Schedule 7, item 10, section 766G of the Corporations Act]

7.14 The new claims handling service captures a broad range of activities, from an initial inquiry before an insurance claim is lodged to the formal lodgement, assessment and settlement of an insurance claim.

Example 7.1 Vhairi has insurance for her rare sports car. After being involved in a crash, Vhairi makes an insurance claim. Vhairi's insurer has authorised an insurance claims manager to handle all of its claims. Vhairi's insurer notifies the claims manager of Vhairi's claim. The claims manager then hires an assessor to assess the damage to Vhairi's car and a smash-repairer to repair the car.Each of these people (the insurer, insurance claims manager, assessor and smash repairer) provide a claims handling service. However, they are affected by the reforms in different ways.The insurer must obtain an Australian financial services licence covering claims handling. The claims manager can obtain their own Australian financial services licence covering claims handling or become an authorised representative of the insurer. The assessor and smash repairer do not need to obtain an Australian financial services licence (or be authorised representatives of a financial services licensee), unless the insurer has given them the power to reject a claim.

7.15 The new claims handling service only applies to insurance products under the Corporations Act. Therefore, it does not extend to products that are not financial products under the Corporations Act, including:

health insurance;
insurance provided by the Commonwealth, and State and Territory insurance (including compulsory third party insurance);
insurance entered into by the Export Finance and Insurance Corporation;
reinsurance; and
insurance-like products (such as warranties).

Licensing requirements

7.16 While the new claims handing service is broad, a person will only need to obtain an Australian financial services licence covering claims handling if the person is:

an insurer;
a tradesperson (referred to as an 'insurance fulfilment provider') who has authority to reject all or part of a claim;
an insurance claims manager;
an insurance broker who provides claims handling services on behalf of the insurer; or
a financial adviser who provides claims handling services on behalf of the insurer.

[Schedule 7, item 12, section 911A(2)(ek) of the Corporations Act]

7.17 An 'insurance fulfilment provider' is a person who provides goods or services to consumers to fulfil insurance contracts. This includes smash repairers, builders and any other tradespeople contracted by an insurer to fulfil a claim. [Schedule 7, item 4, the definition of 'insurance fulfilment provider' in section 761A of the Corporations Act]

7.18 An insurer may authorise a tradesperson to accept a claim and begin immediate repairs. Where this occurs, the tradesperson is not required to obtain an Australian financial services licence covering claims handling, as these arrangements allow for claims to be handled quickly and are to be encouraged, particularly in natural disaster situations.

7.19 However, if an insurer authorises a tradesperson to reject all or part of a claim, the tradesperson must either:

obtain an Australian financial services licence covering claims handling; or
be authorised by a person with an Australian financial services licence covering claims handling.

7.20 This requirement reflects that, in these circumstances, the tradesperson has taken over an important part of the claims handling process that could result in consumer harm. The provision of claims handling services in these circumstances should therefore be regulated under Chapter 7 of the Corporations Act.

7.21 An 'insurance claims manager' is a person who carries on the primary business of providing claims handling services on behalf of one or more insurers. [Schedule 7, items 4 and 6, the definition of 'insurance claims manager' in sections 761A and 761DA of the Corporations Act]

7.22 In practice, insurers may outsource the entire claims handling process to an insurance claims manager. These claims managers are therefore required to either obtain an Australian financial services licence covering claims handling, or be authorised by a person with an Australian financial services licence covering claims handling. This ensures fair regulatory treatment of insurers who handle claims themselves and insurers who outsource their claims handling processes.

7.23 The regulations may prescribe when a person carries on (or does not carry on) the primary business of providing claims handling services on behalf of one or more insurers. This regulation-making power is an integrity measure to ensure:

people that should be captured by the amendments cannot avoid them by restructuring their business; and
people that may be unintentionally captured by the amendments can be excluded.

7.24 Any regulations made for these purposes would be subject to disallowance and parliamentary scrutiny. [Schedule 7, item 6, section 761DA(2) of the Corporations Act]

7.25 Whether a person is an 'insurance broker' relies on the definition in the Insurance Contracts Act, and is a person who carries on the business of arranging contracts of insurance for consumers. [Schedule 7, item 12, section 911A(2)(ek) of the Corporations Act]

7.26 These amendments do not require a trustee of a registrable superannuation entity to obtain an Australian financial services licence covering claims handling. However, a trustee of a registrable superannuation entity who provides claims handling services will be subject to equivalent regulation as part of providing a superannuation trustee financial service (see Chapter 9).

Obligations that apply to Australian financial services licensees

7.27 The general obligations under section 912A of the Corporations Act will apply to Australian financial services licensees who hold a licence covering claims handling.

7.28 Under the general obligations, licensees are required to do all things necessary to ensure that claims handling services are provided efficiently, honestly and fairly. A licensee will generally satisfy this obligation if their claims are handled:

in a timely way without undue delay, balancing the negative effects of delay on consumers with the insurer's reasonable requirements for handling an insurance claim;
in the least onerous and intrusive way possible, including only requesting information, medical examinations, surveillance and other assessments if it is strictly relevant to the claim;
fairly and transparently, by providing consumers with information about:

-
the claims handling process;
-
the reason for information requests; and
-
reasons for decisions; and

in a manner that ensures adequate support is provided for consumers, in particular those who are experiencing vulnerability (such as financial hardship).

Example 7.2 Emily has a total and permanent disability insurance policy. Emily has a serious accident and makes a claim on her policy. The insurer collects information from Emily, appoints a claim assessor and requires Emily to be examined by an independent orthopaedic surgeon.The surgeon provides an opinion that is favourable to Emily and the insurer expresses no reason to doubt the surgeon's opinion, qualifications or expertise. Nevertheless, the insurer seeks the opinions of a second and third orthopaedic surgeon, requiring Emily to undergo the same medical examination multiple times and causing significant delays in the claims handling process.The insurer is not acting efficiently, honestly or fairly as Emily's claim has not been handled in a timely manner and has not been conducted in the least intrusive way possible. The insurer is in breach of section 912A of the Corporations Act.

7.29 Whether an insurance claim has been handled efficiently, honestly and fairly will depend on the circumstances of each case. Relevant factors could include the vulnerability of an insured, whether there has been a surge in the volume of claims to be processed because of a natural disaster, or other unanticipated circumstances that restrict normal operations.

Example 7.3 Onyu has two properties that are covered by separate insurance policies. One property is located in an isolated area, and the other property is in an area that is easily accessible. Both properties are affected by a natural disaster.The property in the easily accessible area is quickly assessed and repaired by representatives of the insurer.In the isolated area, the insurer has experienced a sudden increase in claims and delegates the authority to accept claims to a local builder. The builder takes slightly longer to attend to Onyu's second claim due to the property's isolation and the peak in claims in the area.The insurer for each property is required to ensure its claims are handled efficiently, honestly and fairly. Taking into account the circumstances of each claim, this obligation is likely to be satisfied by each of the insurers.

Licensees are responsible for the conduct of their representatives

7.30 Consistent with the financial services law, Australian financial services licensees who provide claims handling services can appoint authorised representatives to provide those services on their behalf. When this occurs, the licensee is responsible for the conduct of the authorised representative.

7.31 Under section 916F of the Corporations Act, Australian financial services licensees must notify ASIC when they appoint an authorised representative to provide financial services on their behalf. Authorised representatives are subject to a range of requirements under Chapter 7 of the Corporations Act.

Example 7.4 Faith has a life insurance policy. The insurer has appointed an external claims manager as its authorised representative to handle its insurance claims. After Faith passes away, her family lodge a claim.Following a long delay, the external claims manager assesses the claim and recommends to the insurer that the claim be accepted. The insurer accepts the claim immediately.Faith's family complain that the claims process has taken too long.The claims manager is responsible for the delays in handling the claim. However, the insurer is also responsible for the delay because the claims manager is an authorised representative of the insurer.

7.32 Australian financial services licensees who handle claims may hire tradespeople to fulfil claims (as well as other service providers such as investigators and loss assessors) without needing to appoint them as authorised representatives. This exemption does not apply however if the tradesperson is authorised to reject all or part of a claim or is otherwise required to obtain an Australian financial services licence covering claims handling. This is intended to simplify the process of hiring service providers to fulfil claims. [Schedule 7, items 11 and 13, sections 910D and 911B of the Corporations Act]

7.33 Australian financial services licensees are responsible for the conduct of the service providers they hire. Additionally, licensees must ensure the provider has the relevant qualifications and are adequately trained to provide claims handling services. There are no new obligations imposed on these service providers (except if they are authorised to reject all or part of a claim). [Schedule 7, items 11 and 13, sections 910D and 911B of the Corporations Act]

Example 7.5 Larissa has a home and contents insurance policy. Her home is damaged in a flood and she lodges a claim with her insurer, who hires a builder to begin repairing Larissa's house.The insurer has received numerous complaints about the quality of the builder's work, but hires them to repair Larissa's house regardless. The builder fails to adequately repair Larissa's home and Larissa makes a complaint to the insurer.The insurer is responsible for ensuring that its representatives, including the builder, are adequately trained and are competent to provide claims handling services. Given the circumstances, the insurer is likely responsible for failing to comply with this obligation.

7.34 Where a consumer chooses to accept a cash settlement under an insurance contract so that they can hire a service provider of their choice, the Australian financial service licensee responsible for the insurance claim is not responsible for the conduct of the service provider. In these circumstances, the service provider is unlikely to be a representative of the licensee responsible for the claim (in most cases, this would be the insurer).

7.35 The existing extraterritorial application of the financial services law in the Corporations Act will mean that the amendments extend to the claims handling activities of Australian insurance claims outside Australia. Therefore, if an insurer outsources its claim handling services to a representative based overseas, the conduct of that representative will be relevant for the purposes of these reforms.

Licensing requirements for claimant intermediaries

7.36 A claimant intermediary is a person who carries on a business of representing people to pursue insurance claims in exchange for a monetary or non-monetary benefit, or a benefit provided to another party. The regulations may prescribe circumstances in which a person is not a claimant intermediary. [Schedule 7, items 4 and 5, the definition of 'claimant intermediary' in section 761A and section 761CAA of the Corporations Act]

7.37 Claimant intermediaries who carry on a business representing consumers to pursue claims are required to:

obtain an Australian financial services licence covering claims handling;
comply with the general obligations under section 912A of the Corporations Act, including the obligation to:

-
provide claims handling services efficiently, honestly and fairly; and
-
have a compliant internal dispute resolution process in place and be a member of AFCA (if the consumer is a retail client); and

give the consumer a Financial Services Guide if the consumer is a retail client.

7.38 This licensing requirement only applies to insurance claims made under insurance products prescribed by the regulations. [Schedule 7, item 12, section 911A(2)(ek) of the Corporations Act]

7.39 Both of the regulation-making powers described above are required to ensure people who are not intended to be captured by the licensing regime can be excluded as needed. Any regulations made would be subject to disallowance and parliamentary scrutiny.

Example 7.6 Sarah's roof is damaged in a hail storm. Katherine approaches Sarah and says she will repair the roof and handle the insurance paperwork for Sarah in exchange for a fee to be paid to a company controlled by another person.Katherine is a claimant intermediary as she carries on a business of representing a consumer to pursue an insurance claim for a benefit, even though the benefit is not provided directly to Katherine.Katherine will be required to obtain an Australian financial services licence covering claims handling and will be required to act efficiently, honestly and fairly in providing claims handling services.

7.40 Claimant intermediaries who represent retail clients to pursue insurance claims must have a complaint internal dispute resolution process in place and be a member of AFCA. The claimant intermediary must also give the consumer a Financial Services Guide. This ensures the consumer has appropriate information about the financial service that is being offered by the claimant intermediary. [Schedule 7, item 17, section 941C(7A) of the Corporations Act]

Requirement to provide a Cash Settlement Fact Sheet

7.41 A person who offers to settle a general insurance claim of a retail client with a cash payment must give the consumer a Cash Settlement Fact Sheet. This ensures the consumer has sufficient information about the offer to make an informed decision about whether to accept the offer.

7.42 A Cash Settlement Fact Sheet only needs to be provided when the consumer has a choice to make between cash settlement and another settlement option under the insurance contract. An alternative option for settling a claim could be the repair or replacement of the insured item. [Schedule 7, items 4 and 18, the definition of 'Cash Settlement Fact Sheet' in section 761A, sections 948B to 948F of the Corporations Act]

7.43 The Australian financial services licensee or the person acting on behalf of the licensee must give the consumer the Cash Settlement Fact Sheet at the same time the cash settlement offer is made. [Schedule 7, item 18, sections 948B, 948C and 948D of the Corporations Act]

7.44 The Cash Settlement Fact Sheet must be given in writing and:

include all options for settlement that are legally available (for example, the option to have the insured product repaired or replaced);
include a statement of the cash settlement being offered, broken into components representing the sum insured and any additional payments;
include a statement that the insured should consider obtaining independent legal or financial advice before settling;
include an outline of any rights of review regarding the payout the insured may have;
be titled as 'Cash Settlement Fact Sheet' on the cover;
be dated with the date on which the Cash Settlement Fact Sheet was prepared;
be presented in a clear, concise and effective manner; and
contain any other information prescribed by the regulations.

[Schedule 7, item 18, sections 948E and 948F of the Corporations Act]

7.45 In practice, claimant intermediaries will not be required to provide consumers with a Cash Settlement Fact Sheet as they are not offering to settle the consumer's claim.

7.46 A Cash Settlement Fact Sheet must be given in printed or electronic form, and must be:

given to the insured personally;
sent to the insured at a nominated address or fax number; or
provided in another way which is agreed between all parties.

[Schedule 7, item 16, section 940C(1) of the Corporations Act]

7.47 The regulations may prescribe further information which must be included in a Cash Settlement Fact Sheet. This provides flexibility to respond to developments and changes in the insurance industry and is expected to be used to accommodate the different insurance industries and their practices. The regulations would be subject to disallowance and parliamentary scrutiny. [Schedule 7, item 18, section 948F(1) of the Corporations Act]

7.48 A contract cannot overrule the obligations that apply in relation to a Cash Settlement Fact Sheet. [Schedule 7, item 19, section 951A of the Corporations Act]

Penalties regarding Cash Settlement Fact Sheets

7.49 Chapter 7 of the Corporations Act contains a variety of offences, civil penalty provisions and liability provisions that apply when Australian financial services licensees and their representatives fail to provide adequate disclosure documents to consumers. This includes circumstances where disclosure documents are not provided to consumers or defective disclosure documents are provided to consumers. The offences that apply include strict liability offences, and ordinary offences with maximum penalties of up to 15 years imprisonment. The maximum penalty is generally reserved only for the most egregious cases.

7.50 These provisions apply to a number of existing disclosure documents, including:

Statements of Advice, which are provided to consumers receiving personal financial advice; and
Financial Services Guides, which are provided to people receiving certain kinds of financial services.

7.51 The same offences, civil penalty provisions and liability provisions will extend to failures relating to Cash Settlement Fact Sheets. This reflects that Cash Settlement Fact Sheets are important disclosure documents that will assist consumers to make informed decisions whether to accept a cash settlement offer for their insurance claim.

7.52 Therefore, it is an offence if a person:

fails to provide a consumer with a Cash Settlement Fact Sheet when they are required to under the Corporations Act;
either knowingly or unknowingly, gives a Cash Settlement Fact Sheet which is defective; or
fails to take reasonable steps to ensure that their authorised representative;

-
gives a Cash Settlement Fact Sheet when required; and
-
does not give a Cash Settlement Fact Sheet that is defective.

[Schedule 7, items 19 to 33, sections 951A to 953A and section 1317E(3) of, and Schedule 3 to, the Corporations Act]

7.53 A Cash Settlement Fact Sheet will be considered defective if it does not include the material required by sections 948E and 948F of the Corporations Act. This includes for example, the options for settlement legally available to the client, the sum insured under the insurance product and the total amount of the cash settlement being offered. [Schedule 7, items 20, 21, 29 and 30, definitions of 'defective' in sections 952B(1) and 953A(1) of the Corporations Act]

7.54 Failing to give a Cash Settlement Fact Sheet as required is a strict liability offence under section 952C of the Corporations Act. This is consistent with the Guide to Framing Commonwealth Offences as this requirement is necessary to maintain the integrity of the regulatory regime. It is also consistent with the strict liability offences that apply to failures to give other types of disclosure documents to consumers, such as Statements of Advice and Financial Services Guides. [Schedule 7, item 22, sections 952B(1) and 952C of the Corporations Act]

7.55 If a Cash Settlement Fact Sheet is not provided, a consumer who has already suffered a loss may not have the relevant information needed to make an informed (and potentially significant) financial decision. Additionally, the new strict liability offence is not punishable by imprisonment and the penalty is below the maximum penalty unit cap provided for in the Guide to Framing Commonwealth Offences.

7.56 A civil penalty provision applies if a person:

fails to give a disclosure document in the required way;
either knowingly or unknowingly gives a defective disclosure document; or
fails to take reasonable steps to ensure their authorised representative:

-
gives a disclosure document as required; and
-
does not give a disclosure document that is defective.

7.57 The same civil penalty provisions will apply to Cash Settlement Fact Sheets. They will apply to Cash Settlement Fact Sheets in the same manner and with the same penalty as they would apply to other disclosure documents. [Schedule 7, items 18, 20 to 23 and 32, sections 948C, 952B, 952E, 952H and 1317E(3) of the Corporations Act]

7.58 The standard maximum financial penalty for a contravention of a civil penalty provision under the Corporations Act applies to the new civil penalty provisions (see section 1317G of the Corporations Act).

7.59 The liability provisions which apply to failures relating to disclosure documents will also extend to Cash Settlement Fact Sheets. This will allow consumers to recover loss or damage resulting from failures relating to Cash Settlement Fact Sheets (for example, where the consumer was not given a Cash Settlement Fact Sheet or was given a defective Cash Settlement Fact Sheet). [Schedule 7, items 29, 30 and 31, section 953A of the Corporations Act]

Giving advice to consumers when providing claims handling services

7.60 Generally, a person providing financial advice about insurance products is required to:

hold an Australian financial services licence covering the provision of financial advice; and
comply with various obligations under Chapter 7 of the Corporations Act such as training and educational standards.

7.61 The amendments allow a person who provides claims handling services to also provide financial advice which is a necessary part of providing the claims handling service, without needing to hold an Australian financial services licence covering the provision of financial advice or comply with the obligations under Chapter 7 of the Corporations Act relating specifically to financial advice. [Schedule 7, items 8 and 9, sections 766B(7A) to 766B(8) of the Corporations Act 2001]

7.62 However, a person providing financial advice in these circumstances will still need to provide the claims handling service efficiently, honestly and fairly.

7.63 If a person gives advice that is not a necessary part of providing a claims handling service, they would need to hold an Australian financial services licence covering the provision of financial advice and comply with the various other obligations under Chapter 7 of the Corporations Act which relate to financial advice.

7.64 Financial advice that may be a necessary as part of claims handling includes:

providing information about the insurance product such as how a benefit is calculated or how a claim can be lodged;
recommending the easiest way to submit a claim;
recommending the easiest way to get information for a claim;
recommending whether it would be appropriate to repair or replace an item as part of a claim; and
recommending ways to mitigate the extent of loss or damage associated with an insurance claim.

7.65 A regulation-making power allows the Government to prescribe circumstances when advice will and will not be regarded as a necessary part of providing a claims handling service. This will provide industry with greater certainty about the types of advice that can be given when providing a claims handling service without needing to be licensed as a financial adviser. Regulations made under this power would be subject to disallowance and parliamentary scrutiny. [Schedule 7, item 8, section 766B(7B) of the Corporations Act]

Other technical amendments

Lawyers

7.66 Lawyers will not be required to obtain an Australian financial services licence for activities undertaken in their professional capacity as a lawyer. However, if a lawyer provides other services which are not in their professional capacity as a lawyer, such as making a decision about whether an insurance claim should be fulfilled, they may be required to obtain an Australian financial services licence covering claims handling.

7.67 Lawyers can provide the following services without being required to obtain an Australian financial services licence covering claims handling:

advising about matters of law or the application of the law to facts;
providing advice that is a necessary part of being a lawyer (except as prescribed by the regulations);
determining whether an insurer is liable for a claim and quantifying their liability;
negotiating a claim; or
any conduct by a lawyer where they are acting on their client's instructions.

[Schedule 7, item 12, section 911A(2)(en) of the Corporations Act]

Licensing of foreign and wholesale insurers

7.68 Chapter 7 of the Corporations Act contains a number of exemptions for certain foreign insurers and wholesale insurers from the requirement to obtain an Australian financial services licence. These exemptions are extended for the purposes of these amendments, so those foreign insurers and wholesale insurers are not required to obtain an Australian financial services licence for claims handling.

7.69 An insurer prescribed in the regulations can handle an insurance claim of a retail client without needing to hold an Australian financial services licence if:

the insurer has an arrangement with an intermediary that covers claims handling; and
the intermediary holds an Australian financial services licence covering claims handling.

[Schedule 7, item 12, section 911A(2)(el) of the Corporations Act]

7.70 Insurers who have only wholesale clients can provide claims handling services claims without holding an Australian financial services licence covering claims handling if the insurer has an arrangement with a licensed party. [Schedule 7, item 12, section 911A(2)(em) of the Corporations Act]

7.71 Insurers who have only wholesale clients, and where the services they provide are regulated by APRA (such as claims handling services), will be able to handle their own claims without a licence (see section 911A(2)(g) of the Corporations Act).

7.72 This approach to regulating foreign and wholesale insurers is consistent with the existing regulation of foreign and wholesale providers of other financial services under Chapter 7 of the Corporations Act.

Treatment of representatives

7.73 Authorised representatives of Australian financial services licensees can engage other people to provide claims handling services on behalf of the authorised representative and the licensee. When a third person is engaged by an authorised representative in this way, both the authorised representative and the licensee are responsible for the conduct of the third person. [Schedule 7, item 13, section 911B(1)(g) of the Corporations Act]

7.74 Generally, if an Australian financial services licensee seeks to appoint a person as their authorised representative, and that person is already the authorised representative of another licensee, the first licensee must seek the consent of the second licensee (see section 916C of the Corporations Act). However, Australian financial services licensees with a licence covering claims handling are not required to obtain the consent of other licensees to appoint the authorised representatives of those other licensees. [Schedule 7, item 15, section 916C(1) of the Corporations Act]

7.75 Australian financial services licensees with licences covering claims handling are also not required to take reasonable steps to ensure any tradespeople who are their representatives comply with financial services laws that relate to claims handling. However, these licensees remain responsible for the conduct of their representatives in relation to the other obligations under sections 912A and 917A to 917F of the Corporations Act, such as managing conflicts of interest, carrying out supervisory arrangements, and ensuring they are competent to provide those financial services. [Schedule 7, item 14, section 912A(1)(ca) of the Corporations Act]

Other amendments

7.76 Australian financial services licensees with licences covering claims handling will be required to have an internal dispute resolution system in place and to be a member of AFCA where the consumer is a retail client, even if the policy holder is not a retail client (for example, a large sports club that is not a retail client may hold an insurance policy for its individual members who are retail clients). [Schedule 7, items 7 and 10, section 766A(1) and definition of 'claims handling and settling and settling service' in section 766G of the Corporations Act]

7.77 Australian financial services licensees with licences covering claims handling can still be retail clients for the purposes of Chapter 7 of the Corporations Act. This will ensure that businesses which obtain Australian financial services licences will still receive the appropriate degree of regulatory protection if they are below the threshold for becoming a wholesale client. [Schedule 7, item 2, definition of 'professional investor' in section 9 of the Corporations Act]

7.78 A person providing a claims handling service will not need to provide a consumer with a Financial Services Guide in relation to the claims handling service, unless the person is representing an insured to pursue an insurance claim (in which case the person will be a claimant intermediary). [Schedule 7, item 17, section 941C(7A) of the Corporations Act]

7.79 A Financial Services Guide is required to be provided by a claimant intermediary because a person representing a consumer to pursue an insurance claim has a closer and more personal relationship with the consumer. For these services, the consumer is more vulnerable to the conduct of the person representing them to pursue a claim and therefore the consumer is in greater need of disclosure to ensure the service they are receiving is appropriate for their needs.

7.80 The definitions in the Corporations Act are updated to refer to the new claims handling service (referred to as a 'claims handling and settling service'). [Schedule 7, item 3, the definition of 'binder' in section 761A of the Corporations Act]

7.81 Provisions are added to direct readers to provisions that deal with claims handling and settling and Cash Settlement Fact Sheets. [Schedule 7, items 1, 4, and 18, section 9, the definition of 'claims handling and settling and settling service' in section 761A and the definition of 'Cash Settlement Fact Sheet' in section 761A of the Corporations Act]

Transitional arrangements

Overview of the transitional arrangements

7.82 The amendments made by Schedule 7 commence on the later of 1 January 2021 or the day after Royal Assent. [Clause 2]

7.83 However, the amendments made by Schedule 7 will apply to different persons providing claims handling services and different insurance claims at different times.

7.84 The amendments made by Schedule 7 do not apply to any person providing claims handling services before the end of 30 June 2021. [Schedule 7, item 33, sections 1675B(1) and 1675C of the Corporations Act]

7.85 The amendments made by Schedule 7 will never apply to insurance claims that were started before the day the legislation commences. [Schedule 7, item 33, sections 1675 and 1675A of the Corporations Act]

7.86 However, the amendments made by Schedule 7 will apply to an insurance claim started after the day the legislation commences, once Schedule 7 applies in full to the person handling and settling the insurance claim. [Schedule 7, item 33, sections 1675 and 1675A of the Corporations Act]

7.87 For a person who provides claims handling services after 30 June 2021, the amendments made by Schedule 7 partially applies to them, by requiring them to have applied for a new or varied licence covering claims handling. However, a person can provide claims handling services on behalf of someone else who holds, or has applied for, a new or varied licence covering claims handling after 30 June 2021, without having applied for a licence themselves. [Schedule 7, item 33, sections 1675B and 1675C of the Corporations Act]

7.88 This obligation for persons who provide claims handling services to apply for a licence before the amendments made by Schedule 7 applies to them in full ensures that a person who needs a licence will apply for one early, so ASIC has sufficient time to process the licence applications.

7.89 If a person is granted a new licence or variation, Schedule 7 may not apply to them immediately upon being granted a licence. Instead, Schedule 7 will apply to them in full after the last licence-processing day. The last licence-processing day is the later of:

31 December 2021; and
a later day prescribed by the Minister that is before 1 July 2022.

[Schedule 7, item 33, sections 1675B(1) and 1675C of the Corporations Act]

7.90 The Minister is given the discretion to extend the date before Schedule 7 starts to apply in full to a person who has been granted a licence (the last licence-processing day) in case ASIC is unable to process the large number of expected applications before 31 December 2021.

7.91 If a person applies for a licence or variation before the last licence-processing day, but their application is rejected, refused or the person withdraws the application, Schedule 7 applies to them in full from the time the application is rejected, refused or withdrawn. However Schedule 7 will not apply to them if they provide claims handling services on behalf of another person covered by these transitional arrangements. [Schedule 7, item 33, sections 1675B(1)(b) and (d) and 1675C of the Corporations Act]

7.92 If a person does not apply for a new or varied licence before the end of 30 June 2021, Schedule 7 starts to apply to them in full immediately after 30 June 2021. However, Schedule 7 will not apply to them if they provide claims handling services on behalf of another person still covered by these transitional arrangements. [Schedule 7, item 33, sections 1675B(1)(e) and 1675C of the Corporations Act]

7.93 Despite Schedule 7 not applying to any person who provides claims handling services before 30 June 2021, persons who provide these services can take the below steps after Schedule 7 commences, to prepare for when Schedule 7 applies to them:

a financial services licensee can authorise a person to provide claims handling services on their behalf; and
an authorised representative of a licensee may appoint a person to provide claims handling services on behalf of the licensee.

[Schedule 7, item 33, section 1675C of the Corporations Act]

7.94 Despite Schedule 7 not applying to a person who provides claims handling services before 30 June 2021, a financial services licensee must comply with various ASIC information gathering powers after the Schedule 7 commences. [Schedule 7, item 33, section 1675C(1) of the Corporations Act]


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