ASIC writes to insurance bodies on TMD review

ClearView cali FSC life insurance

20 July 2023
| By Rhea Nath |
image
image
expand image

ASIC has reached out to the Insurance Council of Australia (ICA), Council of Australian Life Insurers (CALI) and Financial Services Council (FSC) about its review of over 100 target market determinations (TMDs) for general and life insurance products.

Described as a “targeted, risk-based exercise”, ASIC considered a sample of general and life insurance products regarded as higher risk and/or potentially of low value to consumers.

This week, ASIC issued its first stop order for life insurance products against ClearView Life Assurance for DDO failures.

In its TMD review of over 100 products, ASIC found some “good practices” such as a clear definition of a ‘negative target market’, i.e. the class of consumers for whom the product would not be suitable and product eligibility requirements.

However, others provided less detail, using broad statements to describe the target market or failing to include details of the consumers’ financial situation in their ability to pay premiums and other costs.

The review flagged numerous instances of broad statements that fail to specify details, such as some TMDs on distribution and on review triggers.

ASIC found the typical period for reporting complaints data varied from one to six months, though one TMD did not include a specific period. 

Initial review periods were within one or two years from the date the TMD was made, though ASIC urged insurers to consider a shorter time frame.   

“A significant impact on the product such as a change to the TMD based on a review trigger, a significant dealing outside the target market or a change in a product’s distribution channel would suggest that the TMD’s next ongoing review should be within 12 months,” it said.

The corporate regulator flagged that its initial “facilitative compliance approach” with the DDO regime has shifted to closer scrutiny with active supervision and enforcement.

ASIC added: “We have commenced civil penalty proceedings against a distributor of an investment product and an issuer of a credit product for alleged DDO breaches. We are also considering further stop orders and have several other DDO-related investigations underway.”

Life insurers should not adopt a ‘set-and-forget’ approach to their TMDs, the regulator warned, and insurers should demonstrate a consumer-first mindset through their DDO obligations. 

“The FSC has led compliance efforts with the new DDO regime by developing template target market determinations and data standards for the financial services industry, which have been adopted by life insurers, fund managers, and superannuation trustees,” an FSC spokesperson told Money Management.

“As with ASIC’s targeted reviews of DDO compliance over recent months, the FSC welcomes the additional insight and clarity around how the industry can improve its practices to better inform and protect customers.”

The organisation, which has more than 100 member companies, said it will liaise with the life insurance industry on whether updates to its TMD templates would be appropriate to reflect ASIC’s recent guidance.

At the start of this month, the FSC issued a new Life Insurance Code of Practice to deliver higher standards and stronger consumer protections in life insurance. This introduces over 50 new important consumer protections covering all aspects of how customers interact with their life insurer. 

It encompasses product design, sales practices, and claim processes, and includes vital safeguards for customers during periods of vulnerability, financial hardship, or when experiencing mental health conditions.

CALI said it welcomes ASIC's feedback in its commitment towards ensuring quality outcomes for Australian consumers. 

"Life insurers take current DDO very seriously because they are intended to ensure Australian consumers get the type of cover and products that are right for them, when they need it most,"  a CALI spokesperson told Money Management.

"This new guidance from the regulator will help to inform further work to improve this important disclosure regime and the consumer protections it provides," a CALI spokesperson told Money Management.

 

Read more about:

AUTHOR

Add new comment

The content of this field is kept private and will not be shown publicly.

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

Alex

Planners will be in short supply, with only 376 in FY23–24. In my experience, of this number, only around 20% to 30% wi...

3 hours ago
Peter James

As usual there is no delineation in the article between risk specialist advisers and investment specialist advisers. Thi...

4 hours ago
Mark Harris

Is he serious, improvements from legislation change, all I see is more ASIC compliance and higher costs, this government...

5 hours ago

Insignia Financial has unveiled a new operating model and executive team, including a new head of advice, while three senior executives are set to depart the licensee....

1 week 5 days ago

The $280 billion Australian Retirement Trust is the first superannuation fund off the block to report its performance for the 2023-24 financial year....

3 weeks 1 day ago

Analysis by Chant West of the annual performance of growth superannuation funds has uncovered which ones see the best performance....

5 days ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
Ardea Diversified Bond F
144.00 3 y p.a(%)
3
Hills International
63.39 3 y p.a(%)