The Future of Regulation in Broking

NIBA CEO Dallas Booth, and NIBA’s lawyer Mark Radford of Radford Lawyers, provided delegates with a comprehensive overview of the “avalanche of reforms” that NIBA is closely monitoring.

Booth started by identifying the core themes that came out of the Royal Commission: simplify the law; put the customer first; remove conflicts of interest; and remove incentives which promote misconduct or poor client outcomes.

Booth said, that whilst the Royal Commission did call for simplification of the law, the net result of its response, the reforms program, is a far more difficult and far more complex set of legislation, which is unfortunately going to provide challenges for insurance brokers who will have to cope with the changes.

Booth highlighted that the Unfair Contract Terms legislation is already in place, and the commencement timeframes are hardwired – early April 2021.

Radford said, “Currently under the Insurance Contracts Act, there’s a provision that effectively stops the Unfair Contract Terms applying to contracts subject to the Insurance Contracts Act.

“The proposal is to remove the impact of that, so you end up being caught under the new ASIC Unfair Contract Terms regime.”
Radford said insurers are therefore in the process of reviewing their contract terms, because if a term is found to be unfair, it can be void, obviously having a significant consequence on the claim or claims that insurers may have to pay.

“For brokers, obviously it’s important to engage with insurers to understand what changes are being made, and the impact this might have, not only on the coverage, but also the cost of the insurance,” Radford explained.

“For brokers acting on behalf of a client, this s a new right, a new weapon or tool in your arsenal of argument,” he added.

Booth said the new Design & Distribution Obligations are also now law, but the commencement has been deferred until October next year.

“This does affect all insurance companies, and it does affect pretty well all insurance brokers,” he said.

Insurers will have to have a target market determination, which actually sets out who the product is intended for.

“There’s an obligation on brokers, or distributors more broadly, to only distribute product in accordance with the requirements of the target market determination,” Booth added.

Radford said, “The focus is to put the onus on the insurer, but the challenge is you’ve got to do that properly and sensibly. I don’t think the legislation really achieves that, but we’ve got to deal with what we’ve been given.”

Booth also added that ASIC’s product intervention power is now in place and being used to intervene in the marketplace, where they believe a product is either causing, or has the potential to cause significant detriment to consumers.

“One of the disappointing things of the Royal Commission, was the number of times they had evidence of unscrupulous people selling rubbish products and making a buck along the way,” he said.

Radford added that ASIC can exercise this power, even when there’s no breach of the law.

Booth also referenced the new regulatory guide that has been issued by ASIC, on the handling of complaints and disputes internally.
He reminded brokers that they have until October next year to review their processes and procedures.

They also discussed hawking of insurance products, which they deemed a very difficult piece of draft legislation.

Both admitted they initially struggled to get their heads around it, but have provided a very detailed response to treasury on the first draft.

Booth and Radford also covered off reforms relating to claims handling, reporting of compliance breaches and the add-on insurance deferred sales model.

If you would like more information on any of the above reforms, view pages 10 and 11 of the current Insurance Adviser magazine here.