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December 24, 2012

Unfair contract terms laws to be extended to general insurance contracts

The Government has announced that unfair contract terms laws for insurance will be introduced into the Insurance Contracts Act 1984, based on the UCT regime that applies under the Australian Securities and Investments Commission Act 2001 (ASIC Act).

Draft legislation will be released for consultation in 2013.

The UCT regime will not apply to life insurance contracts at this stage.

The principles for extending unfair contract terms laws to general insurance contracts are:

  • the regime will apply to consumer contracts that are standard form insurance contracts;
  • it will be included as part of the duty of utmost good faith: if a term is found to be unfair, the insurer will be in breach of the duty of utmost good faith;
  • the remedy available where a term is found to be unfair will be that the party may not rely on the term;
  • in addition to the above remedy, a court may consider whether there is another more appropriate remedy;
  • ASIC and consumers will both have the right to take action under UCT laws;
  • ASIC will have the range of enforcement powers that are currently available to it to administer the UCT laws in the ASIC Act;
  • the UCT regime will not apply to a term to the extent it defines the main subject matter of the contract, sets the upfront price payable under the contract or is a term required, or expressly permitted by a law of the Commonwealth or a State or Territory;
  • the definition of an unfair term is that the term:
    *would cause a significant imbalance in the parties rights and obligations under the contract;
    *would cause detriment to a party if relied on;
    *is not reasonably necessary to protect the legitimate interests of the party advantaged by the term. For the purposes of determining whether a term in an insurance contract is reasonably necessary to protect a legitimate interest, a term will be reasonably necessary if it reflects the underwriting risk accepted by the insurer.
  • the insurer will have the onus of proof that a term is reasonably necessary to protect their legitimate interests.

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Posted 24th December 2012 by David Jacobson in Insurance

December 12, 2012

Unclaimed Moneys Regulations

The following regulations have been made to implement the unclaimed moneys changes:

  • Banking Sector Legislation Amendment Regulation 2012 (No. 1) amends the Banking Regulations 1966 and the First Home Saver Accounts Regulations 2008 to specify conditions for a number of bank accounts or deposits and First Home Saver Accounts to become unclaimed moneys.
  • Retirement Savings Accounts Amendment Regulation 2012 (No. 3) amends the Retirement Savings Accounts Regulations 1997 to introduce a 12 month inactivity test for uncontactable members of a super fund. This will clarify the amendments to the unclaimed monies legislation, ensuring that accounts of uncontactable members, which have been active in a 12 month period, are not unnecessarily transferred to the ATO .

UPDATE
The RSA test stipulates that the RSA holder is uncontactable if and only if:
(i) either:
(A) the RSA provider has never had an address for the RSA holder; or
(B) 2 written communications have been sent, or, if the RSA provider so chooses, one written communication has been sent, by the RSA provider to the RSA holder’s last known address and returned unclaimed; and
(ii) the RSA provider has not received a contribution or rollover in respect of the RSA holder within the last 12 months of the RSA holder’s being an RSA holder.

Comlaw has also published a consolidated Superannuation (Unclaimed Money and Lost Members) Act 1999.

Background

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Posted 12th December 2012 by David Jacobson in Financial Services, Insurance, Superannuation, Tax

November 29, 2012

Insurance Contracts Amendment Bill

Treasury has released for consultation an exposure draft Insurance Contracts Amendment Bill 2013 which contains the measures previously contained in a 2010 Bill (which lapsed because of the election) with four proposed refinements.

The key measures in the Bill include:
•removing impediments to the use of electronic communication for statutory notices and documents;
•giving powers to the regulator, Australian Securities and Investments Commission, to take action to address breaches of the duty of utmost good faith by insurers, including in respect of claims handling; and
•making the duty of disclosure easier for consumers to understand and comply with, especially at renewal of household/domestic insurance contracts.

The proposed refinements address concerns raised by key stakeholders in relation to:
•the insured's duty of disclosure;
•remedies of the insurer: life insurance contracts;
•the application of duty of disclosure changes; and
•bundled life insurance contracts.

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Posted 29th November 2012 by David Jacobson in Insurance

November 28, 2012

Unclaimed Moneys Bill passes House of Reps

The Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 has been passed by the House of Representatives, with amendments relating to transitional procedures.

The Government has also announced details of new Regulations.

The Bill will now be sent to the Senate for passage this week. UPDATE: Passed by Senate on 29 November 2012.

UPDATE 6 December: Royal Assent given on 4 December 2012. Download the Act as passed.

The Bill will bring forward the time at which money is recognised under the relevant law as lost or unclaimed.

Amounts held by ADIs will become unclaimed moneys three years after the last deposit or withdrawal (other than fees or interest), instead of seven years. Amounts held by FHSA providers become unclaimed moneys three years after the last contribution or withdrawal (other than fees, taxes or interest). Amounts held by insurers will become unclaimed moneys three years after the policy matures, instead of seven years. Superannuation funds will transfer funds of unidentifiable members after 12 months instead of five years.

Transition
The amendments will provide more time to ADIs, FHSAs providers, life insurers and superannuation funds to implement the changes. They will now have until 31 May 2013 to report on and transfer lost accounts and other lost moneys to Australian Securities and Investments Commission or the ATO as appropriate.

ADIs are required to make a supplementary assessment and payment by 31 May 2013 in addition to the seven year assessment and payment currently required by 31 March 2013. The default assessment date for supplementary payment is 30 May 2013. However, ADIs could pick any date as their assessment date, between 31 December 2012 and 29 May 2013.

ADIs do not need to assess the seven-year unclaimed amount again in the supplementary assessment as they already did so in the original assessment. This means that the supplementary assessment does not need to include the seven-year unclaimed amount to avoid double counting.

The amendments include:

  • The date for assessment of unclaimed moneys for ADIs has been set as 31 December each year.
  • the minimum unclaimed money amount that is required to be reported and transferred to ASIC will be $100 or such other amount as may be prescribed

Regulations
To avoid capturing accounts unintentionally, the Government will introduce regulations so that children’s accounts will still need to be inactive for seven years before being treated as lost. In addition, regulations will specify that First Home Saver Accounts will be excluded until the requirement to make a deposit in four years has been met.

The regulations will also clarify that term deposits remain excluded and sub-accounts will continue to be treated as part of a parent account when determining whether there has been activity on an account in the last three years. Linked accounts (that is, an account that a customer must hold as a condition of holding another account with the same bank, building society or credit union) and mortgage offset accounts will be treated similarly.

The regulations will also clarify that accounts that are frozen by a court order or other legal requirement will also be excluded while they remain frozen and that the three year inactivity period will restart when the freeze is lifted.

The regulations will also clarify that superannuation accounts that have been active in the last 12 months, but where the member is uncontactable, will not be transferred to the ATO.

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Posted 28th November 2012 by David Jacobson in Corporations Act, Financial Services, Insurance, Superannuation

November 27, 2012

Directors’ insurance update

In our July 2011 article one of the questions we recommended directors ask their insurers was “Are directors entitled to payment as legal defence costs are incurred (or in advance) or only as reimbursement?”

We also observed that as a policy usually has an overall aggregate limit of liability covering all the different types of cover, unless there are sub-limits a high claim in one area of the policy in one year may limit the amount available in other areas of the policy in that year.

In Steigrad v BFSL 2007 Limited [2011] NZHC 1037 (the Bridgecorp decision) the NZ High Court decided that the Bridgecorp directors were prevented from having access to their company's D & O policy to meet their defence costs because there were civil claims by investors relating to the collapse of Bridgecorp that were potentially in excess of the $20 million limit of the D&O policy. The D&O policy aggregated cover for liability and defence costs.

The Bridgecorp receivers argued that the full amount of insurance should come to the receivers. By pooling the policy proceeds, rather than separating how much could be allocated to defence costs and how much to liability, secured creditors had priority.

The directors argued that a claim could not be made on the policy until it was quantified, which could only happen after any defence.

The appeal of that decision to the NZ Court of Appeal has been heard and judgment reserved.

The decision is relevant to all directors' liability insurance providing coverage for civil compensation in which defence costs are within the aggregate limit.

The case has also highlighted the issue of whether when there are either multiple claims and/or multiple claimants, an insurer may be precluded from making compensation payments until all claims have been resolved.

While there have been no similar cases in Australia different insurers have responded in different ways.

Directors should review their policies in advance of renewal.

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Posted 27th November 2012 by David Jacobson in Corporate Governance, Corporations Act, Insurance

November 16, 2012

Stronger Super Regulations – Insurance and MySuper

Treasury has released exposure draft Superannuation Legislation Amendment Regulation 2012 for consultation.

The regulations give effect to changes arising from legislation implementing MySuper and governance reforms. The proposed regulations will amend the Corporations Regulations 2001, Superannuation Guarantee (Administration) Regulations 1993, and Superannuation Industry (Supervision) Regulations 1994.

The remaining regulation changes for Stronger Super MySuper and Governance will be released in coming months.

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Posted 16th November 2012 by David Jacobson in Insurance, Superannuation

November 14, 2012

Insurance key facts sheet for home building and contents insurance

Insurance Contracts Amendment Regulation 2012 (No. 2) amends the Insurance Contracts Regulations 1985 to introduce the requirement for an insurer to provide a consumer with a one page key facts sheet for home buildings and home contents insurance.

A Key Facts Sheet must contain the information, and be completed in the way, specified in the prescribed form.

It will not commence operation until 9 November 2014.

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Posted 14th November 2012 by David Jacobson in Insurance

November 1, 2012

Unclaimed Moneys Bill update

The Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 has been introduced into the House of Representatives.

If passed, the Bill will amend the Banking Act 1959, First Home Saver
Accounts Act 2008, Life Insurance Act 1995, Superannuation (Unclaimed Money and Lost Members) Act 1999, Australian Securities and Investments Commission Act 2001, and Corporations Act 2001 to give effect to the unclaimed moneys measures announced in the 2012-13 Mid-Year Economic and Fiscal Outlook (discussed here).

The Bill will bring forward the time at which money is recognised under
the relevant law as lost or unclaimed.

Amounts held by ADIs (other than in RSAs or FHSAs) will become unclaimed moneys three years after the last deposit or withdrawal (other than fees or interest), instead of seven years.

As a transitional measure, the Bill extends the deadline to 30 April 2013 for ADIs to report on, and transfer to the Commonwealth, unclaimed moneys as at 31 December 2012.

According to the Australian Financial Review, the independent MHR's are seeking more information on the measures.

UPDATE 2 November: The Senate Economics Legislation Committee has a new inquiry into the Bill.

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Posted 1st November 2012 by David Jacobson in Corporations Act, Financial Services, Insurance, Superannuation

October 23, 2012

First Home Saver Accounts Act changes

First Home Saver Account (FHSA) deposit accounts are an account issued by an authorised deposit-taking institution (ADI), such as a bank, building society or credit union as well as lerfe companies and RSE Licensees. The features of FHSA deposit accounts are similar to basic deposit products but have restrictions on withdrawal and particular consequences when the accounts are closed because of the tax treatment.More .

The exposure draft Superannuation Legislation Amendment (Further Measures) Bill 2012 contains amendments to the First Home Saver Accounts Act 2008.

If passed, the Bill will replace the existing capital requirements for applicants seeking authorisation as an FHSA provider with a requirement that an applicant satisfy the financial requirements set out in prudential standards under the FHSA Act. The existing capital requirements employ capital requirements for the trustees of public offer superannuation funds which have been repealed by the Trustee Obligations and Prudential Standards Act.

The FHSA Act will also be amended to apply the provisions of the SIS Act to persons involved in the management of an FHSA provider in the same way that the SIS Act provisions apply to a responsible officer of an RSE licensee that is a trustee of a public offer superannuation fund.

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Posted 23rd October 2012 by David Jacobson in Financial Services, Insurance, Superannuation

October 22, 2012

Government reduces unclaimed money period

The Government's Mid-Year Economic and Fiscal Outlook contains an announcement that it has reduced the period of time that banks and other deposit taking and life insurance institutions hold unclaimed moneys from seven to three years.

Statements for each year up to and including 31 December must be submitted to ASIC (together with a cheque for the unclaimed moneys) by 31 March each year.

The change is expected to increase Government receipts by $300 million in 2012-13.

The change will have a significant impact on ADI procedures and software.

ASIC's current unclaimed money procedure is summarised here.

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Posted 22nd October 2012 by David Jacobson in Financial Services, Insurance
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