Retail insurers may expect loss assessors and insurance fulfilment providers to obtain their own Australian Financial Services License (AFSL) as a result of the corporate watchdog looking to regulate claims handling as a financial service, according to The Fold Legal.
An analysis in conjunction actuarial and analytics consulting firm, Finity, said this would be instead of insurers appointing a large number of authorised representatives.
“As a result, we may see the emergence of groups comprised of these entities getting together under one AFSL to share the compliance costs and burden,” The Fold Legal said.
The regulation came out of the Hayne Royal Commission in a recommendation that insurers should have a duty to handle claims “efficiently, honestly, and fairly”.
This would see many businesses that handled and settled insurance claims for retail clients including technology providers needing to be licensed as an AFS licence holder, or appointed as an authorised representative, the analysis said.
New disclosure obligations would also apply including the requirement to give a Statement of Claims Settlement Options with offers of cash settlement.
Insurers, underwriting agencies with delegated claims authorities and brokers acting under a claims binder, and third part claim managers and administrators, loss assessors and loss adjusters, insurance fulfilment providers that have the authority to reject all or part of a claim, and those who provide financial advice to an insured about whether to accept a claim or claims settlement option would need an AFSL.
“If a provider acts for multiple insurers, the cross-endorsement consent process will apply if they wish to be authorised as a representative for more than one insurer,” The Fold Legal said.
“ASIC has not yet released information about how it intends to manage the licensing process and what other information needs to be submitted beyond the standard licensing application requirements. We anticipate that ASIC guidance will cover how applicants can demonstrate the competencies of their proposed responsible manager in support of the claims handling authorisation.
“These reforms present some challenges for insurtechs and raise the question of how they will fit into this new regime. Whether they will need to be licensed will depend on what function their technology actually performs in the claims process and whether the technology means the business as the platform provider has any delegated claims handling authority.”
The changes would apply from 1 July, 2020, to all general and life insurance retail products. This excluded health insurance, CTP, or workers compensation. The Fold Legal noted that it expected guidelines from the Australian Securities and Investments Commission (ASIC) to be released in the first quarter of next year.
Finity said that insurers and their services providers in the lead up to the changes needed to review:
- Which of their activities and functions fall under claims handling and settling;
- Would they require specific ASIC authorisation, or be exempt;
- Is it better to obtain an AFSL, or to become an authorised representative;
- What are the general and specific obligations that they will need to fulfil e.g. training;
- Are the systems, processes and people up to the standard required for providing claims handling and settling services efficiently, honestly and fairly; and
- What are the governance structures and processes with respect to claims handling, including capturing complaints, breaches and addressing poor customer outcomes.