Following the Hayne Royal Commission, the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth) (Act) was passed. Previously, providers did not need to hold an Australian Financial Services Licence (AFSL) to handle claims in the insurance sector.
One of the significant reforms under the Act is the amendment to handling and settling of claims relating to insurance. Anyone providing financial services after 30 June 2021 must have applied for a new or varied AFSL with ASIC, but the authorisation requirements are effective from 31 December 2021.
Under the AFSL, you can provide financial services either directly or through an authorised representative (AR).
An AR is an external provider that would typically require an AFSL in order to handle claims; however, they can be formally appointed on behalf of the insurer. For example, an insurer that appoints a broker to arrange contracts of insurance and provides claim-handling services can become an authorised representative on behalf of the insurer.
Under the Act, an insurer and/or AR have to:
- act efficiently, honestly, and fairly when handling claims;
- ensure that they have adequate systems in place to manage conflicts of interest;
- comply with AFSL conditions and appropriate laws;
- ensure that their staff are adequately trained and competent in handling claims;
- establish an internal dispute resolution process and become a member of Australian Financial Complaints Authority (AFCA); and,
- provide relevant disclosures to retail clients.
ASIC has the right to take enforcement action against any providers that fail to comply with their obligations as an AFS licensee.
Some professions are excluded in the Act from holding an AFSL; they are:
- mortgage brokers;
- insurance brokers;
- travel agents;
- financial advisers;
- property managers;
- estate managers; and
- public trustees.
The above professions are excluded under the Act because handling claims is not typically a part of their core business service. However, if the provider does engage in providing and/or recommending insurance products, they should consider obtaining an AFSL.
Implications for You
After 30 June 2021, insurers and/or service providers can provide claim handling and settling services if a complete application and/or variation for AFSL has been submitted with ASIC before 30 June 2021. The above requirements will come into effect from 31 December 2021.
Do not hesitate to contact us if you need help with applying for AFSL, preparing policies and procedures in line with the Act or if you would like advice regarding your potential obligations under the Act.