Deferred Sale Model Exemption Regulations released in final form

The insurance industry has been waiting on the final exemption regulations for Deferred Sales Model, which have now been released as The Australian Securities and Investments Commission Amendment (Deferred Sales Model) Regulations 2021. 

The National Insurance Brokers Association (NIBA) CEO Dallas Booth said, “NIBA is seeking to address certain issues with Treasury arising from the drafting, in particular regarding whether cover in addition to minimum can be included in certain regulations. We will continue to provide further clarifications as information comes to hand.”

Schedule 3 to the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (the Act) amends the Australian Securities Investment Commission Act 2001 (Cth) (ASIC Act) to implement an industry-wide deferred sales model for the sale of “add-on insurance products” (DSM).

These are essentially insurance sold to consumers (as defined in the Act) in connection with a principal product or service that covers risks that relate to that product or service (subject to certain carve-outs). The regime effectively imposes on the principal product or service provider or relevant third parties wishing to offer and sell the add-on insurance, an obligation to provide an ASIC prescribed notice and a clear 4-day waiting period afterwards, before a sale can be made. It also applies other restrictions on conduct and forms of contact by such persons prior to that time. To the extent, the DSM operates the anti-hawking obligations in s992A of the Corporations Act won’t apply.

The amendments commence on 5 October 2021 and provide exemptions in relation to the following (as defined in each Regulation). Some important changes are noted for each:

• add-on comprehensive motor vehicle or vessel insurance products – Made clear that cover in addition to minimum can be included in the policy;
• add-on compulsory third party motor vehicle insurance products;
• add-on home and contents insurance products;
• add-on home building insurance products;
• add-on landlord insurance products;
• add-on limited motor vehicle or vessel insurance products – Added vessel. Made clear that cover in addition to minimum can be included in the policy;
• add-on transport and delivery insurance products – Added incidental storage;
• add-on travel insurance products;
• business-related add-on insurance products – Price test reduced from $40,000 to $1,000;
• superannuation-related add-on insurance products.

The regulations also set out scenarios in which a consumer enters into a commitment and the deemed timing of entry. These reflect the previous draft. The main change is a new definition of a motor vehicle as a motor-powered road vehicle (including a 4 wheel drive vehicle). This definition ensures that a broad range of motor vehicles sold as principal products or as a service are appropriately captured by the deferred sales model. The definition is intended to include, in addition to four-wheel drives: passenger cars, motorcycles, and heavy road vehicles (for example, motorhomes, trucks, and buses).