Treasury has released a consultation paper on the Government’s support of the Financial Services Royal Commission’s final report recommendation to remove the exclusion of handling and settlement of insurance claims, or potential insurance claims, from the definition of ‘financial service’. This relates to insurance claims handling for both life and general insurance products.
Currently, the exclusion arises in two ways. Firstly, many claims handling activities do not fall within
the current definition of providing a ‘financial service’. Secondly, even when they do fall within the definition, Regulation 7.1.33 of the Corporations Regulations 2001 expressly excludes these activities from the definition.
The Royal Commission found that there was no basis in principle for the exclusion to continue, and
that insurance claims handling is as much the provision of a financial service as any other financial
The Royal Commission heard evidence of insurance claims resulting in financial or personal distress for retail clients.
Implementation of the recommendation will allow the Australian Securities and Investments Commission to enforce a higher standard of behaviour and ensure the consumer can expect the same standard from insurers handling claims as they can from all financial service providers.
The Consultation Paper refers to industry concerns with the removal of the exemption leading to a number of unintended consequences. For example, claims handling staff may be deemed as providing personal financial advice.
The Consultation Paper discusses the removal of the insurance claims handling exclusion, how to
bring claims handling into the definition of ‘financial service’ and subject to oversight by ASIC, and
seeks feedback on the options and ramifications of doing so.