New requirements for providers of insurance claims handling and settling services

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By Frazer Hunt, Partner and Henry Holland, Associate

In response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, legislation has now been enacted which imposes new requirements on anyone that handles or settles insurance claims.

From 1 July 2021, insurance claims handlers will be required to have lodged an application with ASIC for an Australian financial services licence (AFSL) covering claims handling and settling services, or to have become an authorised representative of a relevant AFSL holder.

Under the new regime, insurance claims handlers must comply with the obligations of financial services licensees, including requirements to act efficiently, honestly and fairly, to provide appropriate disclosure to consumers, and to implement processes and policies to manage conflicts of interest and dispute resolution.  These requirements will apply to insurers, insurance claims managers, brokers, loss adjusters and any other persons who provide claims handling and settling services.

The Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth) (the Act), which commenced on 1 January 2021, broadens the scope of financial services covered by the Corporations Act 2001 (Cth)to include claims handling and settling services.

A person provides a claims handling and settling service if:

  • the person makes a recommendation, or states an opinion, in response to an inquiry by or on behalf of another person about an existing or a potential claim by the other person under an insurance product, or that could reasonably be expected to influence a decision whether to continue with the existing claim or to make the potential claim; or
  • the person assists another person to make a claim under an insurance product; or
  • the person represents a person insured under an insurance product in pursuing a claim under the product; or
  • the person assesses whether an insurer has a liability under an insurance product, or provides assistance in relation to such an assessment; or
  • the person makes a decision to accept or reject all or part of a claim under an insurance product; or
  • the person quantifies the extent of the insurer’s liability to another person under an insurance product, or provides assistance in relation to the quantification of the extent of such a liability; or
  • the person offers to settle all or part of a claim under an insurance product; or
  • the person satisfies a liability of the insurer under an insurance product in full or partial settlement of a claim under the insurance product.

The amendments will be operative from 30 June 2021, but the Act provides for a transition period between 1 July 2021 and 31 December 2021 during which claims handling and settling services can only be provided if a complete application for an AFSL covering the relevant services was lodged with ASIC by 30 June 2021, and it has either been granted or is still pending.

From 1 January 2022, claims handling and settling services can only be provided if the AFSL application has been granted by ASIC.

For insurers, this is likely to require variations to existing AFSLs to cover claims handling and settling services, as well as adjusted procedures to ensure that all representatives that handle and settle claims on behalf of insurers meet the relevant obligations.

For loss adjusters and claims managers, this is likely to require an application for an AFSL, or to become an authorised representative of existing AFSL holder.

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