New rules will increase regulatory burden on insurers.
In Australia, product disclosure has traditionally been the chief means of protecting consumers in the financial services industry. However, the complex nature of financial products means that they are not always easily understood by consumers, even where there is full disclosure.
Following concerns that the heavy reliance on product disclosure under the existing regime meant that consumers were not being adequately protected in this sector, in September 2018 the Australian Government introduced the Treasury Laws Amendment Bill 2018 to amend the Corporations Act.
The Bill signals a move away from disclosure towards a "product safety" approach, which fundamentally shifts the accountability for product design and distribution onto issuers and distributors to target the products at an appropriate audience, and equips the Australian Securities and Investments Commission (ASIC) with new product intervention powers.
If the Bill is passed in its current form, a new obligation will be imposed on product issuers, which requires them to state and disclose the target market for a new product. The Bill will place a new obligation on product distributors to ensure that they market the services only to the target market. The Bill also creates new powers for ASIC to proactively enforce these obligations and to intervene where there is a prospect of detriment to consumers. Civil and criminal penalties apply to contraventions of the new obligations.
There will be a transitional period of two years for the product design and distribution obligations for all financial products, after the Bill receives Royal Assent. ASIC's product intervention power will apply the day after the Bill receives Royal Assent, but it will not be retrospective in nature.
We expect that the regulatory burden on insurers in Australia will increase considerably in 2019 if the Bill is passed, as insurers will need to comply with multiple sets of consumer protection obligations that will apply to retail insurance products.
You can read the rest of our insurance predictions here.