The Insurance Amendment Regulations 2009 (No.1)
(Regulations) were released on 29 October 2009.
The Regulations amend the Financial Claims Scheme
(FCS), first established in October 2008 following
the recommendations of the HIH Royal Commission. The FCS seeks to
protect policyholders (of certain classes) who make claims on a
general insurance policy in a situation where the insurance company
The Regulations clarify three key issues.
That the FCS is not intended to cover policy liabilities that
were incurred by a foreign general insurer's Australian branch,
if the liability was incurred before the branch received
authorisation under section 12 of the Insurance Act 1973
to operate as a general insurer in the Australian market.
The commencement of the limitation period within which a
policyholder with a protected policy must lodge a claim in order to
be eligible for financial assistance from the FCS is:
if a claim under the insurance cover is made after the Minister
made the declaration, the day on which the Minister made the
if a claim under the insurance cover was made before the
Minister made his declaration, the day on which the person made the
That the general insurer retains to ability to:
recover under its reinsurance arrangements
claim contribution where there is double insurance (i.e. two
insurance contracts cover the same risk).
The FCS to date
The Federal Government recently activated the FCS Policyholder
Compensation Facility for the first time for a small general
insurer, Australian Family Assurance Limited (which has been in
run-off since 2002).
The Minister for Financial Services, Superannuation and
Corporate Law announced that the Government, through APRA, will
fund the payments under the facility for approximately 18 claimants
and the costs will be recovered as far as possible through the
This will provide a relatively small scale test-run to assess
the effectiveness of the FCS. It remains to be seen whether further
changes will be proposed stemming from any further lessons learned
through this process.
What do the changes mean for you?
The Regulations provide insureds with further confidence that
they can still claim on their policy, despite their insurer
Reinsurers and insurers covering the same risks as the insolvent
insurer are not let off the hook. The Regulations ensure that the
insolvent insurer is still able to pursue reinsurance recoveries as
well as equitable contribution where available.
Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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