Retail insurance laws to require greater diligence from sellers
While the bulk of the responsibility imposed by the new design and distribution obligations for retail insurance will be shouldered by insurers, those selling such insurance products to clients will still see an uptick in their obligations to consumers.
The distribution obligations would apply to any person selling or distributing a retail client product to a retail client, which would include many Australian Financial Services (AFS) licensees, most especially underwriters.
According to the Fold Legal, under the new regime product sellers would have to take reasonable steps to ensure their conduct was consistent with the target market determination (TMD) of the insurance. This would especially apply to restrictions or conditions in the determination.
The TMD requirement was targeted at ensuring that products sold were aligned with the likely objectives, needs and financial situation of the clients forming their target markets.
Insurers would also have to take more responsibility over sellers, with the Fold Legal explaining that they must take reasonable steps to ensure their products’ sale was consistent with the TMD, which could include monitoring and placing restrictions on sellers.
“Insurers dealing with product sellers who have a poor track record of ethical and compliant sales conduct will need to do more to prevent mis-selling and promote compliance,” the firm warned.
Product sellers would also have greater obligations should a client complain about a product, now being required to keep records of complaints they received and when these were reported to the issuer.
Their record-keeping would additionally need to include steps they took as sellers to ensure that the product was sold in a manner consistent with the TMD, and the dates that they reported information about significant dealings that weren’t aligned with the TMD.
The Australian Securities and Investments Commission (ASIC) hoped that these records would give it easier access to information that would help assess the compliance of both insurers and product sellers with the new requirements.
The Fold Legal clarified that these distribution obligations wouldn’t apply to referrers or to brokers who give advice to and place insurance on behalf of the client.
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