ARTICLE
13 October 2022

Insurance claims handling and settling

SG
Sophie Grace Pty Ltd
Contributor
Sophie Grace is a leading Australian firm specialising in both compliance and legal services to participants within the financial services and credit industries. We have serviced Australian and international clients across the financial sector for over a decade. From obtaining the required licences to operate your business to the provision of ongoing compliance support, many businesses have benefited from Sophie Grace’s extensive knowledge in the financial and credit space. We take pride in our ability to offer tailored solutions to a broad range of businesses whilst keeping business practicalities and obligations to regulators at the forefront of our minds when delivering services and advice. Our consultancy services can equip you with assistance and clarity in your business endeavours.
In 2021, ASIC began accepting new AFSL applications for providers of insurance claims handling and settling services.
Australia Insurance
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Who did this affect?

Businesses or representatives that fall into the following categories must hold an AFSL with a claims handling authorisation:

  • Insurers;
  • Insurance Fulfilment Providers;
  • Claims Managers;
  • Claimant Intermediaries;
  • Insurance Brokers; and
  • Financial Advisers (subject to exemptions).

It is important to note that you are not required to hold an AFSL if you are merely giving a recommendation or opinion which is reasonably necessary as part of the handling and settling process as this is not considered providing financial product advice. However, if you recommend an insurance product or provide an opinion on how a settlement amount is to be structured, then you will be providing financial product advice, and therefore require an AFSL.

Exemptions

There are specific exemptions that allow entities to operate without a claims handling authorisation.

If your business provides one of the following services, you are exempt from the new regulations:

  • Professional legal services provided by a lawyer in a professional capacity relating to insurance claims handling and settling;
  • claims handling and settling services provided to a wholesale client under an arrangement between an AFSL holder and the issuer of the insurance;
  • claims handling and settling services provided to a person under an arrangement between an AFSL holder and the issuer of the insurance product prescribed by regulation; and
  • you fall within one of the categories of exclusions of a claimant intermediary as per the Financial Sector Reform (Hayne Royal Commission Response) (Claimant Intermediaries) Regulations 2021.

Additionally, Financial Advisers and Insurance Brokers who satisfy the requirements of regulation 7.1.04 CAA of the Corporations Regulations are also excluded from the requirement to obtain a claims handling and settling authorisation to provide services as a claimant intermediary.

Financial Advisers who are currently authorised under an AFSL to provide financial product advice are excluded from the definition of claimant intermediary and therefore do not require additional AFSL coverage.

Insurance Brokers within the meaning of the Insurance Contracts Act 1984 i.e. those persons who carry on a business of arranging contracts of insurance, whether in Australia or elsewhere, as agent for intending insureds, are also excluded from the definition of claimant intermediary and do not require additional AFSL coverage.

Ongoing Obligations and Relief

Claims Handling and settling AFSLs are subject to the same obligations as other licence holders. You can find further information about these obligations and how Sophie Grace can assist here.

Cash Settlement Fact Sheets

AFSL holders that provide claims handling and settling services are required to provide a Cash Settlement Fact Sheet (CSFS). The CSFS must be provided at the time a cash settlement offer is made and must include prescribed information. This obligation arises when an AFS Licensee:

  • offers retail clients a cash payment to settle all or part of a general insurance claim; and
  • there are other legally available options to settle the claim (i.e., repair or replacement).

The obligation to provide a CSFS applies to the AFSL holder, any Authorised Representatives, and any person acting on behalf of the AFSL holder at the time the cash settlement offer is made.

In February 2022, ASIC implemented relief for claims handling and settling AFS licensees in relation to the provision of a CSFS. The relief allows licensees to make a cash settlement offer in emergency situations or in cases of immediate need without first providing a CSFS. This relief is conditional and will expire in 2025.

To be able to rely on the relief, the following requirements must be met:

  • the client has expressly instructed the AFS Licensee they are in immediate need of a cash payment;
  • the verbal cash settlement offer has been made within 14 days of the insurable event that is the subject of the claim; and
  • the cash settlement offer (and any other immediate cash payments under the claim) does not exceed $5,000.

If the above requirements are satisfied, there are further actions the AFS licensee is required to complete.

If you are unsure whether you meet the above requirements or require further information regarding next steps, please contact Sophie Grace here.

Additionally, there is a Cash Settlement Fact Sheet template available for purchase through our online shop.

Sub Authorised Representative Appointment Relief

Claims handling and settling providers no longer need to notify ASIC of the sub-authorisation of employees under their AFSL. All AFS Licensees have the obligation to monitor and supervise all authorised representatives and employees, however licensees no longer need to notify ASIC of the appointment of authorised representatives if the representative is a corporate entity. ASIC has implemented this change as they have acknowledged that the appointment of sub-authorised representatives by claims handling AFSL holders is likely to create an unnecessary administrative burden and result in limited consumer benefit.

Background

In 2021, as a response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the Australian Securities and Investments Commission (ASIC) began accepting new Australian Financial Services Licence (AFSL) applications for providers of claims handling and settling services as well as variations to existing AFSLs to include the claims handling and settling authorisation.

Further Reading

ARTICLE
13 October 2022

Insurance claims handling and settling

Australia Insurance
Contributor
Sophie Grace is a leading Australian firm specialising in both compliance and legal services to participants within the financial services and credit industries. We have serviced Australian and international clients across the financial sector for over a decade. From obtaining the required licences to operate your business to the provision of ongoing compliance support, many businesses have benefited from Sophie Grace’s extensive knowledge in the financial and credit space. We take pride in our ability to offer tailored solutions to a broad range of businesses whilst keeping business practicalities and obligations to regulators at the forefront of our minds when delivering services and advice. Our consultancy services can equip you with assistance and clarity in your business endeavours.
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