NIBA has made a submission to Federal Treasury in response to the draft legislation on product design and distribution obligations, and proposed new powers for ASIC.
The draft legislation follows the Government’s commitment to implement recommendations from the Financial System Inquiry to put a greater onus on manufacturers and distributors of financial products to ensure the products are relevant and appropriate in the hands of the consumer.
The draft legislation picks this up by recommending that, for any product that must have a Product Disclosure Statement, the issuer (i.e. the insurer) must have a Target Market Determination setting out the target audience for the product and the circumstances in which the product should be sold. Distributors (including insurance brokers) must sell and distribute the product in accordance with the Target Market Determination.
NIBA has expressed a number of strong concerns about the draft legislation. It is very unclear as to what would constitute a valid Target Market Determination for typical domestic insurance policies such as a home buildings policy or a comprehensive private motor policy. Where the legal requirement is unclear, complying with the legal requirement becomes a major challenge for all concerned.
Of greater concern to insurance brokers is the fact that the best interests duty introduced by the FOFA legislation places a stronger onus on brokers than the current proposals. However, it is not at all clear what happens if it is in the client’s best interest to have a certain policy, even if the client is not in the target audience for that policy. This could force an insurance broker to breach one or other of the legal obligations.
The overall assessment is that where insurance brokers are acting for the client, the new regime will add a whole new layer of compliance burden, but will offer little or no additional protection for clients.
NIBA has sought a meeting with Treasury to discuss these concerns in detail. We will keep members informed of the progress of those discussions.