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December 13, 2011

APRA review of capital standards for insurers

The Australian Prudential Regulation Authority (APRA) has released a response paper and 14 draft prudential standards in a third round of consultation on its review of capital standards for general and life insurers. The aims of the review include improving the risk-sensitivity of the capital standards and achieving better alignment of these standards across APRA-regulated industries.

APRA is seeking comment from industry and other interested stakeholders on its proposals by 24 February 2012.

APRA will undertake further consultation on revised draft prudential standards, prudential practice guides and draft reporting forms during 2012. The complete set of final prudential standards, reporting forms and instructions are expected to be released by October 2012. APRA intends that the revised prudential standards take effect from 1 January 2013, with the first reporting under the revised framework to commence from the first reporting period in 2013.

APRA will consider requests from insurers for transitional arrangements on a case-by-case basis in the second half of 2012.

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Posted 13th December 2011 by David Jacobson in Financial Services, Insurance

November 25, 2011

Insurance Contracts Amendment Bill 2011: Floods

The Insurance Contracts Amendment Bill 2011 has been introduced into the House of Representatives.

Insurance providers will be required to use a standard definition of the term "flood" for riverine flooding in Home Building and Home Contents (combined and individual) insurance contracts and contracts held by small businesses and strata titles. The term "flood" will be defined in regulations.

In addition to existing disclosure requirements for home building and home contents insurance policies contained in the Corporations Act, insurers will be required to provide a Key Facts Sheet, which outlines the key information on what is and what is not covered in respect of the particular home building, home contents or home and contents insurance policy requested by a consumer.

The requirements will commence two years after the day the regulations are made in respect of each of the measures.

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Posted 25th November 2011 by David Jacobson in Insurance

November 24, 2011

Inquiry into Residential Strata Title Insurance

The Assistant Treasurer has requested the House of Representatives Standing Committee on Social Policy and Legal Affairs inquiry into the insurance industry during disaster events to expand its Terms of Reference to include issues around residential strata insurance, particularly in Northern Australia.

The inquiry will include consideration of the affordability of residential strata title insurance.

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Posted 24th November 2011 by David Jacobson in Insurance

Reforming flood insurance

The Government has released its Response to Natural Disaster Insurance Review (NDIR) Recommendations as well as a Consultation Paper - Reforming Flood Insurance: A Proposal to Improve Availability and Transparency which proposes requiring all insurers to offer flood cover in home building and home contents insurance policies they sell, while allowing consumers to 'opt out' of flood cover when they purchase insurance.

The Government proposes to release draft regulations about the standard definition for consultation by the end of the year:

Flood means the covering of normally dry land by water that has escaped or been released from the normal confines of:
A. any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or
B. any reservoir, canal, or dam.

The Government will also implement a requirement for insurers to provide their customers with a Key Facts Sheet for all home and home contents policies. The Key Facts Sheet will clearly set out, on a single page, all key information about the features of the policy. The Key Facts Sheet will complement the existing Product Disclosure Statement.

The Government will also discuss with lending institutions a mechanism to remind borrowers annually of their obligation to maintain insurance and of the risks of under-insurance.

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Posted 24th November 2011 by David Jacobson in Insurance

October 31, 2011

ASIC requirements for telephone sales of general insurance products

ASIC has made class order relief to permit a Product Disclosure Statement (PDS) for a general insurance product to be provided after the quote is given during a telephone call.

Relief provided by Class Order [CO 11/842] applies the requirement to give a PDS differently depending on whether the client wants to be given a PDS at or around the time the quote is given. Under the relief, the client can choose to receive the PDS, and, if they do, the general insurer or intermediary must give a PDS as soon as practicable after the quote is given. This means that the PDS can be given after the telephone call.

The relief given by ASIC does not affect the time at which a PDS must be given if a quote is given during an unsolicited telephone call, or is otherwise unsolicited by the retail client.

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Posted 31st October 2011 by David Jacobson in Corporations Act, Insurance

October 19, 2011

ASIC consumer credit insurance report

ASIC has published Report 256 Consumer credit insurance: A review of sales practices by authorised deposit-taking institutions (REP 256)
which looked at data provided by 15 banks, credit unions and building societies that distributed CCI in conjunction with home loans, personal loans and credit cards in the period from 1 January 2009 to 31 December 2009.

CCI is designed to protect consumers if something happens to them that affects their ability to meet their credit repayments. Typically, CCI pays loan repayments for consumers in the event of: death; permanent disablement; or loss of income due to injury, illness or involuntary unemployment.

ASIC regulates the licensing, conduct and disclosure obligations of insurers and ADIs under the Insurance Contracts Act 1984, the Australian Securities and Investments Commission Act 2001, the National Credit Code and the Corporations Act.

In its review of sales practices ASIC identified the following risks:

  • consumers not being made aware that they have purchased CCI or that CCI is optional
  • consumers not being asked whether or not they wish to purchase CCI
  • consumers not being eligible to claim on all components of the CCI policy they have purchased
  • the potential for consumers to be pressured or harassed by sales staff, and
  • consumers not understanding the cost or the duration of the CCI policy.

Of the 15 ADIs ASIC reviewed, three sold at least one CCI product over the telephone without using a script. Some of the scripts that were used lacked sufficient structure to prevent staff from improvising and providing additional information not covered in the scripts.

ASIC also identified that the training delivered by some ADIs was limited to the induction of new staff and was not provided on an ongoing basis; and/or focused on generating sales rather than on minimising the risks of non-compliant sales.

ASIC's recommendations cover:

  • Formal sales scripts
  • Evidence of consent
  • Disclosure of interest payments
  • Separate quotes
  • Disclosure of premium structure
  • Duration of CCI policies
  • Timing of provision of PDSs
  • Ongoing information
  • Training programs
  • Monitoring systems

ASIC plans to conduct a further review of claims handling and insurer practices for CCI.

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Posted 19th October 2011 by David Jacobson in Corporations Act, Financial Services, Insurance

October 6, 2011

APRA finalises general insurance standards

APRA has released three prudential standards and eight reporting standards applicable to Level 2 insurance groups.

The prudential standards are effective on 1 December 2011 and the reporting standards are effective for reporting periods commencing on or after 1 July 2011. The first half-yearly reporting on the revised basis will be for the period ending 31 December 2011 and is due on 31 March 2012.

The policy position in the final prudential and reporting standards is largely consistent with APRA’s proposals in the discussion paper. APRA has implemented the refinements to the definition of a Level 2 insurance group, actuarial matters, intra-group exposures and remuneration schemes. APRA has amended its approach to governing law requirements.

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Posted 6th October 2011 by David Jacobson in Insurance

September 13, 2011

ASIC Review of financial advice industry practice

ASIC has released a report Review of financial advice industry practice based on the information it received in 2010 from the top 20 financial services licensees that provide financial product advice to retail clients on their practices. Together, these top 20 licensees covered just over 13,000 individual advisers.

The Report makes the following recommendations:

  • Licensee business models – licensees must ensure that they effectively manage conflicts of interest in their business models. Disclosure alone will not always satisfy a licensee’s obligations and this needs constant oversight.
  • Training of advisers – licensees should continue to give training a high priority as this lessens the risk of poor advice being provided.
  • Monitoring and supervision of advisers – licensees must ensure their advisers comply with their stated procedures. Licensees must check references of new advisers to exclude ‘bad apples’. Licensees must report breaches and demonstrate remediation plans are in place. Licensees should retain access to client records at all times.
  • Product and strategic advice – conflicts of interest need to be managed. It is important to educate clients about risk and return so that their expectations are more realistic.
  • Complaints handling and compensation – licensees must handle complaints well. Licensees must ensure that their compensation arrangements (including PI insurance) adequately cover all the products and services they advise upon.

ASIC will approach the 30 next largest AFS licensees that provide financial product advice to retail clients with a reduced and more targeted questionnaire, which takes intio account the results of the first questionnaire. It is expected this second phase review will commence by the end of 2011. ASIC will not use its information-gathering powers to seek this information, unless requested to do so by the licensee, as feedback from the first questionnaire indicated that most licensees are willing to participate voluntarily.

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Posted 13th September 2011 by David Jacobson in Corporations Act, Financial Services, Insurance

APRA consolidated standards for ADIs and insurers

The Australian Prudential Regulation Authority (APRA) has released in final form four prudential standards — on governance, fitness and propriety, outsourcing and business continuity management — that will consolidate and replace 12 existing standards across the authorised deposit-taking (ADI), general insurance and life insurance industries, from 1 July 2012:

The goal of harmonisation is simplified compliance, particularly for groups that operate across regulated industries.

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Posted 13th September 2011 by David Jacobson in Financial Services, Insurance

August 11, 2011

ASIC reviews car insurance complaints

ASIC has published its Report 245 Review of general insurance claims handling and internal dispute resolution procedures (REP 245) which reviews general insurance claims handling and internal dispute resolution (IDR) procedures in the context of motor vehicle insurance. The review looked at claims in 2009 on eight general insurers, representing 20 car insurance brands and approximately 75% of the direct retail market.

The report makes 9 recommendations including:

  • insurers should record information relating to both denied and withdrawn claims, and should regularly analyse and review that information.
  • insurers should provide written responses to consumers who complain about the outcome of their claim, both after any initial review of the complaint as well as when a dispute is finalised. A written response should set out the reasons for the decision, the availability of further review and information about the Financial Ombudsman Service.
  • Insurers should review their systems and processes for recording and analysing Tier 1 complaints to align them with systems used at Tier 2, so that they are able to extract useful information to address the underlying causes of complaints

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Posted 11th August 2011 by David Jacobson in Corporations Act, Insurance
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