ASIC confirmed on 14 April 2020 that it is delaying a number of regulatory activities that are not “immediately necessary” in light of the challenges posed by COVID-19. Expectations regarding many regulatory reforms relevant to the general insurance industry, however, remain uncertain.
ASIC’s update of 14 April 2020 builds on its announcement of 23 March 2020, when it said it had “immediately suspended a number of near-term activities which are not time-critical”, including consultation, regulatory reports and reviews. ASIC has now confirmed that, due to COVID-19, it will put a range of regulatory matters on hold in order to focus on “issues of immediate concern, including maintaining the integrity of markets and protecting vulnerable consumers”.
While ASIC provides some useful information on its approach to regulatory matters and reviews, there is only a little in the update regarding its role in implementing regulatory reforms for the general insurance industry.
No mention is made, for instance, of ASIC’s draft Regulatory Guide on implementation of the Design & Distribution Obligations, which remains a key element of preparations for the 5 April 2021 start date for that legislation. Also missing is a reference to its proposal to use the Product Intervention Power to apply a Deferred Sales Model for Add-on insurance and warranty products in the motor dealer channel. ASIC is likely referring to these two initiatives when it says:
We will provide further advice on changes to ASIC work implementing the recommendations of the Financial Services Royal Commission in light of changes to the Parliamentary timetable and any future Government decisions on those measures.
It would seem, therefore, that ASIC is having to hold back on these points until Treasury releases its position. Putting that aside, what are the key points for the industry in ASIC’s update?
Complaints and Internal Dispute Resolution
As flagged in its 23 March 2020 release, ASIC has confirmed that its review of Regulatory Guide 165 will be deferred “until further notice”.
Most importantly, this means that ASIC’s proposal to broaden the definition of a complaint and to require insurers to record all such complaints, including those that are resolved at the first point of contact, is on hold at this stage. Compliance with this requirement will be a significant piece of work for most insurers, involving new or enhanced complaints management systems and processes, so this announcement may provide real relief for many. How far it goes, however, will depend in part on where things land in other areas. Complaints management also plays an important role, for instance, in relation to meeting the Design & Distribution Obligations.
ASIC mentions its continuing focus on vulnerable customers at several points in the update. For instance, it states that it will:
heighten its support for consumers who may be vulnerable to scams and sharp practices, receive poor advice, or need assistance in finding information and support should they fall into hardship.
At this time, the insurance industry will be very aware of the need to support its vulnerable customers, so ASIC’s focus in this area is no surprise. Its various statements in the past regarding fairness, along with its Report 621 last year on claims investigations, will remain valuable guidance on its expectations.
Travel insurance review
ASIC has stated that it will be deferring its review of travel insurance until further notice. That review was first announced in March 2019 and ASIC’s 2019 Corporate Plan explained that it would include a review of travel insurance distribution channels and “assessing outcomes for consumers, including product value”. Given the prominence of travel insurance claims resulting from COVID-19, any future review will likely also have regard to a range of product terms and conditions.
Consumer Credit Insurance monitoring
ASIC is also deferring follow up work to ensure that the insurers that are continuing to sell consumer credit insurance are meeting the expectations set out in its Report 622, relating to product design and value, sales practices, post-sales conduct, compliance and monitoring.
On enforcement, ASIC makes the point that actions will continue, though it recognises that there will be changes to “the timing and process of investigations to take into account the impact of COVID-19”. This will obviously also extend to the process of pursuing prosecutions in the courts. In relation to Notices and data requests, ASIC invites recipients to request more time to respond if needed.
So far as existing remediation programmes are concerned, ASIC has offered a more flexible approach to being provided with updates, stating:
Unless ASIC has indicated to a licensee that it should adopt a different approach for a particular remediation program, it is acceptable for licensees to provide us with updates consistent with their internal firm reporting in lieu of the current form and scheduling of reporting arrangements.
No mention is made, though, of extending timeframes for delivery of remediation payments, which will generally be both resource hungry and subject to logistic challenges. Given that ASIC also confirms the position taken in its 23 March 2020 release, that it has asked providers to accelerate remediation payments in some areas, it is clear that the delivery of timely remediation payments remains a regulatory priority.
While this latest update from ASIC only answers some of the general insurance industry’s questions regarding regulatory reforms, it continues to send a practical message. It prioritises customers, and especially vulnerable customers, at this challenging time, but is otherwise accommodating. ASIC also reiterates that it will work constructively and pragmatically with regulated entities, “mindful that they may encounter difficulties in undertaking their regulatory work due to the impact of COVID-19”.
For more information on insurance regulatory reforms, please contact insurance advisory principal, Mathew Kaley.