Treasury has released for public consultation exposure draft legislation and regulations to remove the exclusion of insurance claims handling and settlement services from the definition of a ‘financial service’ in the Corporations Act 2001. Background.
The Financial Services Royal Commission recommended that the handling and settlement of insurance claims, or potential insurance claims, should no longer be excluded from the definition of ‘financial service’ (recommendation 4.8).
Handling and settling an insurance claim is currently excluded from being a financial service by regulation 7.1.33 of the Corporations Regulations 2001. The effect of the exclusion is that persons are not obliged to act efficiently, honestly and fairly or comply with other disclosure or conduct obligations
What is “handling and settling an insurance claim”?
A person handles and settles an insurance claim for the purposes of the Corporations Act 2001 if they:
• make a recommendation or state an opinion that could influence a decision whether to make an insurance claim;
• assist another person to make an insurance claim;
• assess whether an insurer is liable under an insurance product;
• make a decision to accept or reject all or part of an insurance claim;
• quantify an insurer’s liability under an insurance product;
• offer to settle all or part of an insurance claim; or
• satisfy a liability of an insurer under an insurance claim.
The Bill also amends the Corporations Act 2001 to tailor the application of the existing financial services regime to the new financial service of handling and settling an insurance claim.
These changes include:
• requiring the following persons to either hold an Australian financial services licence that covers handling and settling an insurance claim or become an authorised representative of such a licence holder in order to handle and settle an insurance claim:
– an insurer;
– a loss assessor or loss adjustor acting on behalf of an insurer;
– an insurance fulfilment provider with authority to reject all or part of a claim;
– an insurance claims manager;
– an insurance broker who handles an insurance claim on behalf of the insurer; or
– a person who provides financial advice to an insured and who handles and settles an insurance claim on behalf of the insurer;
• excluding recommendations or opinions that are reasonably necessary as part of handling and settling an insurance claim from the financial product advice regime; and
• requiring persons to provide a Statement of Claim Settlement Options to insureds who are retail clients if the insurer is offering to settle all or part of a general insurance claim through cash settlement instead of repairing or replacing the insured product.
The regulation of handling and settling an insurance claim by registrable superannuation entity licensees will be addressed as part of the Government’s response to the Financial Services Royal Commission recommendations related to superannuation regulators (recommendations 3.8, 6.3-6.5). Consultation on that legislation will take place in early 2020.