Cth Releases Draft Regulations for Deferred Sales Model Exemptions

Friday 23 July 2021 @ 10.44 a.m. | Corporate & Regulatory | Legal Research

The Federal Government has released the [Draft] Australian Securities and Investments Commission Amendment (Deferred Sales Model Exemptions) Regulations 2021 (Cth) (“the Draft Regulations”) for public comment and feedback.

Submissions on the Exposure Draft and its explanatory materials are currently open.

Purpose of the Draft Regulation

As outlined in the Draft Explanatory Statement (“the Draft ES”), the purpose of the Draft Regulations is:

“to exempt certain classes of add-on insurance products from the deferred sales model for a period of five years”.

The deferred sales model seek to enable consumers to make informed decisions on add-on insurance product purchases. The Draft ES explains that it would do so by:

"[separating] the sale of an add-on insurance product from that of the principal product or service. Broadly, the deferred sales model prohibits the sale of add-on insurance products for at least four days after a customer has entered into a commitment to acquire the principal product or service."

The deferred sales model is to come into force on 5 October 2021, as amendments from the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth) ("the Act") commence. The originating Bill for the Act was discussed in an earlier TimeBase article.

Definition of “add-on insurance product”

As explained in the Draft ES, this deferred sales model relates to an “add-on insurance product”, which covers a financial product that:

  • "is offered or sold to a customer in connection with the customer entering into a commitment to acquire a product or service;
  • is offered or sold by:
    • the person who sold the principal product or service; or
    • a third party who has an arrangement with that person which covers the add-on insurance product;
  • manages financial risk related to the principal product or service; and
  • is either a contract of insurance or provides a benefit under a contract of insurance."

Overview of the Proposed Amendments

The Draft Regulations propose to amend the Australian Securities and Investments Commissions Regulations 2001 ("the ASIC Regulations”) by introducing a new Part 2A to introduce exemptions to the deferred sales model.

The proposed exempt classes of add-on insurance products include:

  • add-on comprehensive motor vehicle products;
  • add-on vessel insurance products;
  • add-on compulsory third party (CTP) motor vehicle insurance products; and 
  • add-on home and contents insurance products.

Comment and Reaction

As reported in an article in the Insurance Council of Australia ("the ICA") website, the ICA commented that it:

“… strongly supports the intention of the deferred sales model for add-on insurance which introduces a four-day pause between the sale of a primary product and the sale of an add-on insurance product, to help individual customers make informed decisions when purchasing insurance.”

Andrew Hall, the CEO of the ICA, further commented:

“[The] announcement shows the Government has listened to the concerns of the industry and applied appropriate exemptions, so consumers are able to get immediate insurance cover to protect their valuable purchases. Importantly for insurers the Government’s decision means the industry has certainty about the implementation of the deferred sales model and can continue to provide valuable support to the economy through the challenges of COVID-19.”

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products. Nothing on this website should be construed as legal advice and does not substitute for the advice of competent legal counsel.

Sources:

[Draft] Australian Securities and Investments Commission Amendment (Deferred Sales
Model Exemptions) Regulations 2021 and explanatory materials available from Timebase's LawOne service.

Deferred sales model a win for insurers and consumers (Insurance Council of Australia, 8 July 2021)

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