Royal Commission Claims Handling Reforms – ASIC Cost Recovery

One of the Hayne's Royal Commission recommendations was to make the handling and settling of insurance claims a “financial service”. Schedule 7 to the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Act) Act 2020 amends Chapter 7 of the Corporations Act to apply the financial services regime to insurance claims handling

Written on 26 February, 2021
Tanaya Das

One of the Hayne’s Royal Commission recommendations was to make the handling and settling of insurance claims a “financial service”. Schedule 7 to the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Act) Act 2020 amends Chapter 7 of the Corporations Act to apply the financial services regime to insurance claims handling.

This requires those organisations who are providing a claims handling or settling service of a specified type that triggers the licensing obligation to:

  • get an AFSL covering such services or vary any existing AFSL to cover them; or
  • act as an authorised representative of a licensee in providing such services.

National Insurance Brokers Association (NIBA) CEO, Dallas Booth said, “Insurance brokers are likely to only be caught when acting as agent of an insurer. Whilst insurance brokers representing clients can be caught by the “claims intermediary” licensing category, an exception is likely to apply to insurance brokers. We are waiting on Treasury to release the final regulation that contains this exemption.”

Whilst the legislation started on 1 January 2021 a transition period can apply to those who properly apply for a licence before 1 July 2021. The transition period ends 1 January 2022.

ASIC Cost Recovery Levy

For some years now, ASIC has been imposing a levy on AFS licence holders to recover the cost of regulatory activities undertaken by ASIC.

The Federal Government has now made a Regulation indicating that the ASIC cost recovery levy will also include a component for claims handling.

If:

  1. An entity has an AFS licence, and
  2. The entity’s AFS licence has an endorsement for claims handling,

then the entity will be levied under the ASIC claims handling cost recovery levy.  The amount of the levy will be $500 plus an amount calculated according to the number of claims handled in the previous financial year.  The claims handling cost recovery will be part of the overall ASIC cost recovery levy that will continue to be issued each year.

AFS licence endorsement or authorised representative appointment?

Booth said, “As noted above, an exception is likely to apply to insurance brokers when acting for the client so brokers are likely to only be caught when acting as agent of an insurer. We are waiting on Treasury to release the final regulation that contains this exemption.”

“Assuming the relief is provided, member principals will need to determine the best approach for their firm if they handle claims on behalf of an insurance company.  For example, in certain cases a license may not be needed if the insurer claims handling part of the business is split into a separate entity from the broking business.”