Legal Update: Claims as a Financial Service

Brokers acting under a claims binder and third party claims managers, amongst other providers, will need to obtain their own Australian Financial Services Licence (AFSL) or apply to ASIC prior to 30 June 2021* for a variation of their existing licence, if they are providing a “claims handling & settling service” (note: deadline deferred from 31 December 2020 due to COVID-19 pandemic impact).

Why?  Effective from 31 December 2020* (originally 1 July 2020) claims handling and settling services become a financial service, so I want to explore what the legislation changes mean for AHI, our Broker partners and our claims management ecosystem.

In recommendation 4.8 of the Financial Services Royal Commission, Commissioner Hayne recommended the removal of the exemption for handling and settling an insurance claim from the definition of what is a ‘financial service’. Commissioner Hayne made the observation that there was no basis in principle or practice for continuing to exclude handling and settling an insurance claim from the definition of a ‘financial service’.

According to Insurance Law Tomorrow, the General Insurance Code of Practice, which requires insurers to handle claims in an honest, fair, transparent and timely manner will now be extended to incorporate the requirements of the new legislation, extending the powers of ASIC to take licensing action.

The transition period to lodge AFSL applications/variations will run through to 30 June 2021 and all providers need to be operating under an AFSL or have an exemption (e.g. lawyers).

Who will this impact:

According to Insurance Law Tomorrow, “A person will be providing a claims handling and settling service for the purposes of the Corporations Act 2001 if they do any of the following:

• make a recommendation or state an opinion that could influence a decision whether to make an insurance claim;
• assist another person to make an insurance claim;
• assess whether an insurer is liable under an insurance product, or provide assistance in such assessment;
• make a decision to accept or reject all or parts of an insurance claim;
• quantify an insurer’s liability under an insurance product, or provide assistance in relation to such quantification;
• offer to settle all or part of an insurance claim; or
• satisfy a liability of an insurer under an insurance claim.”

Who will need a licence or to become an authorised representative of a licence holder?

The draft legislation proposes that the following will need to obtain an Australian Financial Services Licence (AFSL), update their existing AFSL, or be an authorised representative of an appropriately authorised AFSL holder, covering the new financial service of ‘claims handing and settling service’:

• an insurer;
• a loss assessor or loss adjuster acting on behalf of an insurer;
• an insurance fulfilment provider with authority to reject all or part of a claim on behalf of the insurer. However, fulfilment providers who do not have such authority from the insurer will not require authorisation;
• an insurance claims manager, meaning a person who carries on a business of settling or assessing insurance claims. This includes third party administrators and claims agents in Australia acting on behalf of overseas insurers;
• an insurance broker who handles an insurance claim on behalf of the insurer, but not when acting as a claims advocate for an Insured; and
• a person who provides financial product advice to an insured and who handles and settles an insurance claim on behalf of the insurer.”

At AHI this means we will be:

• Applying to ASIC to vary our existing AFSL, given that under our binding authorities we are providing a “claims handling & settling service” on behalf of our subscribing insurers.
• Implementing a new and comprehensive training regime for all claims staff to ensure awareness of these regulatory changes on our day to day claims operations, as well as incorporating the requirements of the 2020 General Insurance Code of Practice.

How this changes the way we work with our Brokers:

1. AHI will continue to liaise directly with claimants in accordance with the new legislation, with full transparency with the claimant’s broker.
2. AHI will require all partners in our claim’s management ecosystem, such as assessors, loss adjusters, investigators, TPA’s etc. to hold their own AFSL or be an Authorised Representative of another compliment AFSL holder.
3. AHI will provide Retail customer/claimants with a ‘Statement of Claim Settlement Options’ document, when offering to settle a claim in full or in part using a cash payment. This document will contain details as to:
   • Options legally available to settle the claim
   • Cash amount being offered
   • Advise claimant to seek independent financial advice
   • Any other information as prescribed in the regulations

AHI, like many providers, will continue to monitor for further guidance from Treasury and ASIC and keep you up-to-date as the situation evolves.

*All dates current at publishing of this article. 

This article is not meant to represent legal advice, so please seek independent guidance for your specific circumstances.