The new deferred sales model for add-on insurance
The National Insurance Brokers Association (NIBA) CEO Dallas Booth has reminded insurance brokers about the the Royal Commission recommended ban on “add on insurance” products and the new deferred sales model, where insurance is offered and sold in conjunction with a primary sale or service (insurance sold when you rent a car, travel insurance you purchase from the travel agent when you book your overseas travel, etc.).
Add on insurance was examined by the Royal Commission because of concerns regarding the value of insurance products sold via motor dealers. And in late 2020 the Federal Parliament passed laws implementing a number of Royal Commission recommendations, including the ban on add on insurance.
Booth said, “Following consultations and discussions with interested parties including NIBA, the government has released draft regulations setting out exemptions to the add on insurance ban.”
NIBA’s legal adviser Mark Radford advised, “The Government has now released an Exposure Draft of the Australian Securities and Investments Commission Amendment (Deferred Sales Model Exemptions) Regulations 2021 setting out what products will be exempted from the Deferred Sales model which is due to commence on 5 October 2021.”
The Australian Securities and Investments Commission (ASIC) has also released a new regulatory guide and final customer information requirements as part of its work to implement the new deferred sales model for add-on insurance (RG 275). It provides guidance to industry as they prepare to comply with the deferred sales model from 5 October 2021.
As required by the reforms, ASIC has made an instrument specifying the information that must be given to a customer to start the four-day deferral period, and how that information must be given.
ASIC Deputy Chair Karen Chester said, “This is a key Government reform aimed squarely at improving consumer outcomes in the add-on insurance market. The pause in the sales process will give people time to consider the insurance they’ve been offered, and compare it with alternatives. It will reduce the risk of people buying insurance on the spot that is poor value or just not right for them.”
The draft regulations propose carves outs of the following classes of add-on insurance products:
- add-on comprehensive motor vehicle or vessel insurance products;
- 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 insurance products;
- add-on transport and delivery insurance products;
- add-on travel insurance products;
- business-related add-on insurance products;
- superannuation-related add-on insurance products
Booth added that all of these are subject to specific definitions which NIBA is currently considering and preparing a submission on, based on its analysis of the regulations and member feedback.
Members can access the consultation page and the relevant draft regulations on the Treasure website. The exemption is to apply for a period of five years from the commencement of the Regulations on 5 October 2021.
Further more Booth said, “NIBA will provide further information to members when the proposed regulations are finalised and the detailed definitions of each exemption are agreed.”