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January 23, 2014

ASIC reviews funeral insurance ads

ASIC has announced that TAL Direct Pty Limited (TAL) which sells funeral insurance products under the brand ‘InsuranceLine’ agreed to change its products following ASIC raising concerns regarding TAL’s advertising of funeral insurance.

ASIC was concerned that in TAL’s advertising of its funeral insurance product:

  • premium increases and stepped premiums were not adequately disclosed or explained;
  • qualifications relating to advertised prices were not sufficiently prominent; and
  • quoted prices were not representative of the imagery used in the advertising, including the age of the actors.

TAL withdrew its existing funeral insurance advertisements in June 2013, and announced the introduction of its new range of funeral insurance products, with policy features including:

  • level premiums for the life of the policy; and
  • capped premiums.

Background:ASIC Report 292

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Posted 23rd January 2014 by David Jacobson in Insurance, Marketing

November 18, 2013

How hard is it to wear two hats?

There are many corporate positions that may be double hatted (depending on the company size): company secretary/general counsel, general counsel/chief compliance officer, CFO/risk officer, internal auditor/compliance officer.

But how practical is it for an employee to wear two hats at once?

The issue is whether the person can effectively carry out both functions.

For example, for ADIs, insurers and superannuation funds, APRA requires that a Chief Risk Officer be independent from business lines, the finance function and other revenue-generating capabilities.

Other positions may require direct access to the board (not just to report to the board) without a conflict of interest.

The issue is whether the double-hatted role will result in serious problems being overlooked or whether the dual roles interact well together.

For lawyers there are issues relating to liability and legal professional privilege:

In Shafron v Australian Securities and Investments Commission [2012] HCA 18 the High Court decided that Mr Shafron's responsibilities with James Hardie as company secretary and general counsel were indivisible and must be viewed as a composite whole.

In Telstra Corporation Limited v Minister for Communications, Information Technology and the Arts (No. 2) [2007] FCA 1445, the Federal Court decided that it must not be assumed that all advice given by a lawyer employed in both legal and management positions in a company has the benefit of legal professional privilege if it cannot be proved they were acting in a legal (rather than a management) capacity when they gave the advice.

It should not be assumed that 2 positions which may appear to "fit" will work together in practice.

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Posted 18th November 2013 by David Jacobson in Compliance, Corporations Act, Financial Services, Insurance, Risk Management, Superannuation

November 6, 2013

FOS and small business guarantors

The Financial Ombudsman Service (FOS) has published its Approach to disputes lodged by by guarantors who have guaranteed the debts of small business borrowers.

Although guarantee disputes are a small percentage of the total disputes handled by FOS, it saw a large (64%) increase in business guarantee disputes with Financial Service Providers (FSPs) in 2012-2013.

FOS can review most disputes lodged by guarantors, as long as they fall within its Terms of Reference:

  • the business must satisfy the definition of ‘small business’: it must have had fewer than 20 employees (or fewer than 100 employees if the business involves the manufacture of goods) at the time of the act or omission that gave rise to the dispute;
  • if the guarantor is also a company then it must also satisfy the small business definition;
  • a guarantor can lodge a dispute about the circumstances of entering the guarantee even if the small business borrower is insolvent;
  • if the guarantor is seeking to have a guarantee set aside, then the guaranteed debt must be less than $280,000;
  • however, if an FSP is seeking to recover a final amount to extinguish the debt that is less than $280,000, FOS will consider the dispute even though the full guarantee limit may be for more than $280,000;
  • if the guarantor’s dispute is about a request for financial difficulty assistance, FOS will consider the dispute regardless of the guarantee amount.

Even if an FSP is not a subscriber to the Code of Banking Practice, FOS still expects them to generally follow the Code’s guidelines which relate to taking guarantees.

In some limited circumstances, a guarantor may lodge a dispute that would normally be brought by the borrower.

If a guarantor lodges a dispute with FOS, the FSP cannot take action to recover the debt from the guarantor while the FOS dispute remains open.

Langes advises FSPs on disputes with guarantors (and how to avoid them).

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Posted 6th November 2013 by David Jacobson in Financial Services, Insurance

September 10, 2013

Product terms not transparent: pet insurance

When financial product features, costs and incentives are not transparent consumers are prevented from making well-informed financial decisions or comparing products.

ASIC has announced that improvements have been made to disclosure in pet insurance product disclosure statements (PDSs) and websites in response to concerns raised by ASIC as part of a targeted industry-wide review.

There has been a significant increase in disputes received by the Financial Ombudsman Service Limited (FOS) about pet insurance during 2012 and 2013.

ASIC’s review identified concerns about disclosure in some pet insurance PDSs and websites including:

  • Insufficient or confusing disclosure about policy limits, pre-existing conditions (including conditions that consumers are likely to consider unusual or unexpected) and policy exclusions.
  • some of the PDSs did not make it clear that pet insurance generally excludes cover for pre-existing conditions that occurred prior to the purchase of pet insurance, even if the pre-existing condition last resulted in symptoms or treatment many years beforehand, and
  • some of the PDSs and some of the online material (such as online quotes) did not clearly state the limits to the amount of cover provided per year and/or per illness or accident.
  • Insufficient disclosure or non-disclosure of the need for consumers to make co-payments and pay excesses in the event of a claim.
  • The use of worked examples of benefit amounts and other promotional material conflicting with or not accurately reflective of the policy
  • Representations comparing pet insurance to health insurance (which is a different type of insurance product with different features of cover).

ASIC has previously raised disclosure issues in respect of funeral insurance.

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Posted 10th September 2013 by David Jacobson in Financial Services, Insurance, Marketing

September 6, 2013

What we’ve been working on

At Langes+ we undertake a broad range of work for our financial services sector clients. Here's a snapshot of some of the matters we worked on over the previous month.

The spotlight this month is on some of our insurance litigation matters as well as commercial matters:

• Exploding LPG Gas bottle claim settled. We finalised a favourable settlement, negotiated at a mediation in WA, of a claim for personal injuries and property damage arising from the explosion of an LPG gas bottle. We were acting for a major insurer. Before we were instructed, the insurer had been represented by two other legal firms, the matter had been underway for 6 years, and there had been a previous unsuccessful mediation.

• Gold Bullion claim dismissed. Our client, an insurer, had denied a claim in which its insured claimed that she’d had 75 bars of gold bullion, and other property, stolen from her home. She claimed that she bought the gold using cash income she’d generated by selling virtual items in on-line games. Our client considered the claim to be fraudulent. The matter proceeded to trial this month in SA. On the third day of trial the insured consented to an order dismissing her claim.

• Faulty house claim settled. Our client, an insurer, was one of 5 defendants in an action commenced by homeowners whose home had been so badly affected by subsidence that it needs to be demolished and rebuilt. We represented our client at mediation, and a settlement was reached which our client considered to be very favourable.

• AGM and directors election related advice. We provided advice to a number of mutual ADIs in relation to AGM and director election related issues, and settled draft notices and related documents.

• Governance issues. We met with the Chairman and CEO of a mutual ADI to advise in relation to governance issues including board size, board rotation issues, and the potential appointment of board-appointed directors.

• Advertising of credit products. We advised a number of clients in relation credit advertisement related issues. Our advice covered various topics which included comparative advertising, the calculation and disclosure of comparison rates, and the content of qualifiers.

• Break fees. We assisted a client which was developing a new method of calculating early repayment, prepayment and switch fees on its loan products.

• Template loan documents. We assisted several clients to review and modify their existing forms of loan contracts and other loan related documents, either as part of general reviews or in order to create new loan products.

• Mortgage enforcement. We continue to handle numerous mortgage enforcement matters. We have matters underway in NSW, QLD, VIC, SA, and WA. In one matter there were 8 loans, 5 mortgages properties, and related borrowers one of which was a company which had gone into liquidation.

• Insurance agency agreement. We reviewed a proposed new agency agreement between an ADI client and an insurer.

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Posted 6th September 2013 by David Jacobson in Compliance, Financial Services, Insurance

September 2, 2013

When does information become financial advice?

We regularly get questions about the difference between factual information and financial advice.

The issue is important: from 1 July 2013, all financial services licensees must ensure they have systems and procedures in place to ensure representatives who provide personal advice must act in the best interests of customers and place the customer’s interests ahead of their own when developing and providing advice. You must also warn the client if advice is based on incomplete or inaccurate information.

Persons who provide financial product advice to retail clients must also comply with additional disclosure obligations under the Corporations Act from 1 July 2013.

Factual information is more likely to be advice if it makes a recommendation about what a client should do.

A recommendation or a statement of opinion constitutes financial product advice if it is intended to influence a person in making a decision about a particular financial product.

Financial product advice generally involves an evaluation, assessment or comparison of, some or all of the features of a financial product.

Under the Corporations Act, all financial product advice is either ‘personal advice’ or ‘general advice’.

Personal advice is financial product advice given or directed to a person (including by electronic means) in circumstances where the person giving or directing the advice has considered one or more of the client’s objectives, financial situation and needs.

All other financial product advice is general advice.

To assist you in applying these rules in practice you should consider ASIC RG175 and RG244.

RG175 contains the following examples of the difference between personal advice and general advice:

  • Mailout to entire client list
  • Investment seminar for all clients (which does not give personal advice in response to audience questions)
  • Mailout of brochure in response to a client query
  • Quoting from a PDS in response to a query
  • Mailout to particular client groups
  • Marketing campaigns to a market segment
  • Investment seminars for particular client groups

RG 244 contains the following examples of giving information and advice:

  • How to invest an inheritance
  • The adequacy of retirement savings
  • A retirement savings health check
  • Changing investment options—Call centre conversation
  • Insurance—Call centre conversation
  • Making extra contributions—Email advice
  • Paying a windfall into superannuation or mortgage
  • Superannuation and Centrelink payments––Effect on age pension of accessing funds through superannuation or a mortgage redraw
  • Transition to retirement
  • How long will my account-based pension product last?
  • Nomination of beneficiaries
  • Motor vehicle insurance—Which level of excess?
  • Information and advice about basic deposit products
  • Advice from a stockbroker to an existing client.

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Posted 2nd September 2013 by admin in Corporations Act, Financial Services, Future of Financial Advice Reforms, Insurance, Superannuation

August 27, 2013

Directors’ insurance defence costs: Australian case

In Chubb Insurance Company of Australia Limited v Moore [2013] NSWCA 212 the Supreme Court of NSW Court of Appeal decided that a charge by creditors under section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (LRA) over directors’ and officers’ (D&O) insurance policies does not prevent an insurer from advancing defence costs to an insured party.

Although in this case the charge did not apply for jurisdiction reasons the Court made a number of important comments about section 6.

Following the collapse of Great Southern Limited (Great Southern) and its subsidiaries proceedings commenced in two states. The plaintiffs claimed damages from former directors and executives of Great Southern, alleging contraventions of the various Acts, and that section 6 of the LRA gave them priority over legal expenses incurred by the directors and executives of Great Southern in defending those proceedings.

All of the defendants in all of the Great Southern Proceedings are insured persons under contracts of insurance entered into between GSL, on the one hand, and the Insurers on the other. The Policies cover the liability that the Executives and GSMAL may be found to have in the Great Southern Proceedings. However, in addition, the Policies cover legal expenses incurred by the defendants in the Great Southern Proceedings in defending those proceedings. The essential question that gave rise to the present proceeding is whether s 6 affords priority to the GS Claimants over the defendants in the Great Southern Proceedings (the GS Defendants) in relation to moneys that may be payable under the Policies.

The court found that the statutory charge created by section 6 does not prevent an insurer from advancing defence costs to an insured party:

"Section 6 of the Reform Act was enacted to address a perceived unfairness that could arise where a person is insured against a liability, that liability arises, the insured obtains a sum from its insurer and then the insured either disappears or fritters away the sum or enters into a collusive arrangement with the insurer. In such situations, even if a claimant obtains a verdict against the insured wrongdoer, he or she may not recover any sum from the insured ...

The charge is concerned with moneys payable in respect of that liability, being the liability of the insured to pay damages or compensation to the claimant. The charge is not expressed to catch all moneys that might be payable under the contract of insurance....

Even if s 6 of the Reform Act imposed a charge on any insurance moneys that are or may become payable under the Policies in respect of the liability of an insured person to pay damages or compensation to any of the Transform Claimants or the PDS Claimants, such charge would not extend to insurance moneys payable in respect of defence costs, legal representation expenses or costs and expenses that are paid by the Insurers in accordance with the Policies before judgment is entered or settlement is agreed in respect of the claim for damages or compensation of the relevant Transform Claimant or PDS Claimant."

Background: NZ Bridgecorp decision

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Posted 27th August 2013 by David Jacobson in Corporate Governance, Insurance

UK card insurance settlement

The Financial Conduct Authority (FCA) has announced that it has reached an agreement with Card Protection Plan Limited (CPP) and 13 high street banks and credit card issuers that will pave the way for redress to be paid to customers who were mis-sold CPP’s Card Protection and Identity Protection policies.

According to the FCA seven million customers, who between them bought and renewed about 23 million policies, could collectively receive redress of up to £1.3bn with redress per customer depending on the type of policy (or policies) owned and the length of time it was held. The agreement is subject to court approval.

The insurance products, ‘Card Protection’, which cost approximately £30 per year and ‘Identity Protection’, which cost approximately £80 per year were widely mis-sold by CPP, resulting in a £10.5m fine in November 2012.

Customers were given misleading and unclear information about the policies so that they bought cover that either was not needed, or to cover risks that had been greatly exaggerated. As well as CPP selling directly to customers, high street banks and credit card issuers introduced millions of customers to CPP.


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Posted 27th August 2013 by David Jacobson in Financial Services, Insurance

August 9, 2013

Case note: contract terms declared unfair

Under Part 2.3 of the Australian Consumer Law (ACL) unfair contract terms in standard form consumer contracts are void. The contract will continue to bind the parties, however, if it can still operate without the unfair term.

In Australian Competition and Consumer Commission v Bytecard Pty. Limited (judgment not yet available online) the Federal Court declared that a number of clauses in ByteCard's standard form consumer contracts for internet access services were unfair and therefore void.

The Federal Court declared, by consent, that 4 clauses of ByteCard’s standard terms and conditions are unfair contract terms. The unfair contract terms:

  • enabled ByteCard to unilaterally vary the price under an existing contract without providing the customer with a right to terminate the contract;
  • required the consumer to indemnify ByteCard in any circumstance, even where the contract has not been breached and the liability, loss or damage may have been caused by ByteCard’s breach of the contract; and
  • enabled ByteCard to unilaterally terminate the contract at any time with or without cause or reason.

The terms were considered unfair as they:

  • created a significant imbalance in the parties’ rights and obligations;
  • were not reasonably necessary to protect ByteCard’s legitimate interests; and
  • if applied or relied upon by ByteCard, would cause detriment to a customer.

The decision gives an indication of what types of clauses the ACCC is taking an interest in and guidance when determining whether similar terms could be unfair or not.

“Standard form” is not defined in the legislation, but it usually means that the same terms are offered to all without negotiation.

In May 2013 the ACCC published a report on the outcome of its industry review of unfair contract terms.

The ACCC reviewed standard form consumer contracts in the airline, telecommunications, fitness and vehicle rental industries, as well as some contracts commonly used by online traders. A select number of standard form contracts used by prominent travel agents were also examined.

The law does not apply to insurance contracts, because the Insurance Contracts Act 1984 (Cth) provides that an insurance contract cannot be the subject of relief under any Commonwealth Act on grounds of unfairness. However the Commonwealth Government introduced the Insurance Contracts Amendment (Unfair Terms) Bill 2013 into Parliament prescribing that general insurance contracts are also subject to the Australian Consumer Law. The Bill lapsed with the calling of the election.

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Posted 9th August 2013 by David Jacobson in Consumer Law, Insurance, Web/Tech

August 5, 2013

Election called: bills lapse

The 2013 federal election will be held on 7 September.

As this Parliament will not sit again the Bills currently before Parliament will lapse.

These include the Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2013, the Insurance Contracts Amendment (Unfair Terms) Bill 2013 and the Privacy Amendment (Privacy Alerts) Bill 2013.

The Local Government Referendum will also not proceed.

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Posted 5th August 2013 by David Jacobson in Business Planning, Insurance, Privacy
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