The Australian Securities and Investments Commission (ASIC) has released a draft of its regulatory guide to the deferred sales model of add-on insurance.
It is not yet the completed article, but does provide an insight into the requirements that are likely to apply to providers of add-on insurance when complying with the deferred sales model, and communicate how ASIC will approach applications for exemption from the deferred sales model (DSM).
The Australian Government decided to develop the deferred sales model after the Royal Commission into Misconduct in the Banking, uperannuation and Financial Services Industry recommended an industry-wide deferred sales model for add-on insurance.
The intent is to separate the sale of any add-on insurance from that of the sale of the principal product or service. It would apply across all sales channels, in person and online, with a deferral period of four clear days. It is not intended to apply to:
- products that are the subject of an ASIC product intervention order which imposes a deferred sales period;
- comprehensive car insurance;
- products that the Minister exempts by regulations;
- products and entities that ASIC exempts by notifiable or legislative instrument; and
- products recommended by financial advisers.
The draft suggests the four-day period commences at the later of:
- the time the consumer enters into the commitment to acquire the principal product or service to which the add-on insurance product relates; or
- the time the consumer is given information about the product as prescribed by ASIC (the prescribed information).
A series of prohibitions would be in place during the DSM, which would apply to the principal provider and related third parties. The prohibitions relate to:
- The third party or principal provider sells an add-on insurance product to the consumer, except after the end of the
- add-on insurance deferral period.
- It is an offence to offer an add-on insurance product for issue or sale to the consumer, or request or invite the consumer to ask for, apply for, or purchase an add-on insurance product, where:
- the offer, request or invitation is not in writing, except during the add-on insurance pre-deferral period or after the end of the add-on insurance deferral period;
- the offer, request or invitation is not in writing, except if the offer or request is during the add-on insurance pre-deferral period or after the end of the period of six weeks beginning on the first day of the add-on insurance deferral period.
- the offer, request or invitation is not in writing, and is made during the add-on insurance deferral period.
- the offer, request or invitation is not in writing, and is made during the period of six weeks beginning on the first day of the add-on insurance deferral.
- before the offer, request or invitation is made, the consumer informs the third party or principal provider that they do not want to receive such offers, requests or invitations.
In the period after the add-on insurance deferral period, but before the date that is six weeks after the beginning of the add-on insurance deferral period, add-on insurance products may be sold to consumers. Communication with the consumer in forms other than writing is restricted.
At the end of the six-week period, any communications with consumers will be subject to anti-hawking legislation.
The period before the DSM occurs is called the pre-deferral period. The pre-deferral period begins when:
- The consumer indicates an intention to acquire the principal product or service.
- If there is an add-on insurance deferral period in relation to the add-on insurance product, ends immediately before the start of the deferral period, or otherwise does not end.
During pre-deferral, the consumer can be communicated with but selling an add-on product is prohibited.
Consumers can be communicated with at any stage during the deferral periods if that communication is in response to consumer queries, having received the prescribed information.
At any stage during the deferred sales model periods, a consumer can inform either the principal provider or a related third party that they no longer wish to receive offers, requests or invitations to purchase or apply for an add-on insurance product. Once a consumer has made such a request, it is an offence for the principal provider or a third party to offer, request or invite a consumer to purchase or apply for an add-on insurance product.
It is important to stress that this is just a draft document at this point. The AADA will continue to work with ASIC, and keep members informed as to the progress of this model.