We previously wrote on the upcoming implementation of the 2021 insurance regulatory reforms, including the deferred sales model for add-on insurance products. On 8 July 2021, the Treasurer announced which insurance products will be exempt from the deferred sales model.
What is the Deferred Sales Model?
The Government passed the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth) on 10 December 2020 introducing the deferred sales model for add-on insurance. While the legislation specifically exempts comprehensive motor insurance from the regime, the legislation also provides for regulations to be introduced at a later date to exempt certain classes of add-on insurance products, where appropriate.
The deferred sales model prohibits the sale of add-on insurance products for four days after a customer has entered into a ‘commitment’ to acquire the principal product or service. Offences are imposed for any failure to comply with this new regime, set to come into effect from 5 October 2021.
The Government had previously announced it would exempt CTP insurance and travel insurance products. The Government has now announced the following exemptions following consultation:
- compulsory third party insurance for motor vehicles;
- third party property damage;
- fire and theft insurance for motor vehicles;
- comprehensive insurance for boats, motorcycles, motorhomes, caravans and trucks;
- insurance sold within superannuation (including group life insurance);
- postage and delivery of consumer goods insurance;
- home building insurance;
- home and contents insurance;
- landlord insurance; and
- wholesale style insurance available to businesses.
The Government will continue to consult with stakeholders on additional exemptions that may be appropriate. The regime is due to commence on 5 October 2021. To view the Treasurer’s announcement please follow this link.
Our analysis
The deferred sales model is a significant reform affecting the add-on insurance market. ASIC has previously taken action over commissions paid in relation to add-on insurance products but has not gone so far to regulate the timing of the sale process itself. Prior to the passage of the legislation, ASIC had considered using its Product Intervention Powers to implement a deferred sales model for certain products but this plan did not come to fruition.
The exemptions will provide practical benefit to insurers and intermediaries seeking to distribute these insurance products. However, there are some notable products that have not been included in the list of exemptions, including consumer credit insurance, extended warranty insurance, and insurance for consumer goods such as mobile devices and laptops outside of a home and contents insurance policy.
It is also important to remember that the exemptions only apply to the deferred sales model, and will not apply to the operation of the new anti-hawking regime which will also commence on 5 October 2021. Insurers and intermediaries will still need to ensure they are compliant with the new anti-hawking regime whether they are distributing exempt add-on insurance products or not. Where the product is subject to the deferred sales model, the anti-hawking regime only applies before the add-on insurance pre-deferral period, and 6 weeks after the end of the add-on insurance deferral period.
Anti-hawking obligations apply – consider what is ‘unsolicited contact’
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Customer indicates intention to obtain primary product
Add-on insurance product pre-deferral period commences
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Customer commits to purchase primary product and receives prescribed information
Add-on insurance product deferred sales period commences
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Four days later
Add-on insurance product may be sold (communication must be in writing)
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Six weeks later the anti-hawking obligations apply – consider what is ‘unsolicited contact’
Under the new anti-hawking regime, a person cannot offer a financial product for issue or sale, or request or invite the customer to ask for or apply for a particular financial product, during an ‘unsolicited contact’ with a retail client. Whether contact is ‘unsolicited contact’ depends on the facts. In some cases, an insurer or intermediary may be able to offer an insurance product if the consumer consented to the person making the offer or the offer of the insurance is otherwise ‘within the scope’ of the consumer’s consent. Insurers and intermediaries should review their sales process for affected products and prepare to adapt to the new regulated sales landscape starting on 5 October 2021.
We are helping insurers and intermediaries navigate these changes. Please contact the authors if we can support you.
