Corporate Advisory, Insurance

The show must go on – NSW announces Planning System Acceleration Program in response to COVID-19

3 April, 2020

The Financial Services Royal Commission recommended in February that Treasury develop an “industry-wide” Deferred Sales Model for the sale of all Add-on Insurance products. Treasury’s Proposal Paper, released on 10 September 20191, sets out the details.

Treasury’s proposal is to apply a simple, uniform Deferred Sales Model to all types of Add-on Insurance across all channels through which they are distributed, and subject to very limited exceptions.

The Model will operate as follows:

  • Insurance information is not to be put to the consumer until they have made a financial commitment to purchase the primary good or service, or to arrange finance over that good or service.
  • The distributor can then provide prescribed information about the Add-on Insurance product to the customer.
  • A four-day deferral period must then pass before the distributor is able to contact the customer.
  • The customer will be entitled to reduce the deferral period to a single day at their initiative. In order to do so, the customer would need to contact the distributor to complete the purchase of the insurance product.

Let’s look at some of the points coming out of this.

What products are caught?

The Model is to apply to all “Add-on Insurance”, other than where it has been expressly exempted. As such, it is important that we have clarity on what is meant by Add-on Insurance. Treasury suggests the following definition:

“Those insurance products that are offered or sold at the same time as when a consumer purchases the primary product or finance for which the insurance covers associated risks.”

The Code Governance Committee’s June 2018 report into general insurance2 provides a good analysis of what might fall within such a definition. It identified 28 different types of Add-on Insurance products. Examples of those sold outside of motor vehicle dealers and financial institutions included:

  • travel insurance;
  • ticket event/cancellation insurance;
  • mobile phone insurance;
  • pet insurance;
  • marine pleasurecraft insurance;
  • rental bond insurance;
  • rental vehicle excess insurance;
  • transit insurance; and
  • jewellery insurance.

Distribution channels for these products could take a wide variety of forms. Examples would include travel agents, airlines, ticket sellers, mobile phone retailers, real estate agents and transport companies. Significantly, Treasury refers to it including online sales, where that sits alongside the sale of the primary product or service.

Obviously, some of the products referred to above are also sold in circumstances where they would not be Add-on Insurance, for instance through direct sales. Treasury accepts that this will occur and provides an example in its paper. It notes that pet insurance will be Add-on Insurance if it is offered “at the same time or in conjunction with” the purchase of a pet that it covers, or services provided in relation to that pet (eg. veterinary services), but not if it is sold on a standalone basis.

Are any Add-on Insurance products exempt?

Treasury envisages that some Add-on Insurance products will be exempt from a deferred sales period3, though it warns that that will only be the case where there is strong quantitative evidence of product value and consumer understanding. Treasury proposes that ASIC will take the lead role in determining exemptions, having regard to matters such as:

  • historical good value for money;
  • strong competition;
  • high risk of underinsurance; and
  • well understood by customers.

The Royal Commission expressly noted that comprehensive motor insurance should not be subject to a deferred sales period. Any other exemptions would presumably need to have similar characteristics.

How will the customer’s “financial commitment” trigger work?

Treasury’s proposal to use the customer’s “financial commitment” to purchase the primary product or service, or to take out finance, as the trigger for providing insurance information is a middle ground between options previously put to and considered by ASIC. What constitutes that “financial commitment”, though, needs to be clear.

Overall, Treasury says that what is needed is a “concrete” decision by the customer. Plainly, payment for a product or service would meet the test. Treasury states that paying a deposit would also be enough. In relation to finance, it says that lodging an application form would be an appropriate trigger. No doubt there will be other situations which might need clarification; for instance, would the reservation of a flight, held for a period without payment, trigger the right to provide insurance information?

What “prescribed information” will need to be given?

Treasury has proposed that ASIC would also determine what needs to be given to the customer, though it states that this could include:

  • basic product information such as premium, policy duration and details of significant features and benefits, significant and unusual exclusions or limitations;
  • information regarding when the customer can purchase the product;
  • the product claims ratio;
  • a notice that the product is sold by other distributors; and
  • a link to the ASIC MoneySmart website page on the product if available.

I would expect that development of a useful and uniform approach to presenting this summary information will take some thought; past attempts to provide valuable summaries of insurance product terms have proved challenging.

Whether the Product Disclosure Statement and Financial Services Guide (or policy wording for non-retail products) are also to be provided at this point is unsaid. Presumably, it would be useful for consumers to also have those documents made available to them during the deferral period.

If a claims ratio is to be included for the product, customers would likely benefit from an explanation of what it means in the context of the product concerned.

How is the four-day deferral period to be counted?

Based on a diagrammatic representation of the Model in Treasury’s paper, the day on which the consumer is given prescribed information about the product will be counted as day one. The distributor will be entitled to contact the customer on day four so, in fact, the deferral is for two clear days.

It is noteworthy that the four-day deferral period is less than the seven-day period recommended by the Productivity Commission4, and considerably less than other proposals considered. Treasury’s position on this recognises the risk that, if left for too long, customers might disengage altogether from the decision whether to purchase insurance, with the risk that they will end up without insurance that they need.

How can the customer be contacted after the deferral period?

Treasury has proposed that contact with the customer after completion of the deferral period be limited to one approach in writing. This might be done, for instance, through an email. If this does not evince a response, no further approach can be made.

The UK experience

The proposed model is similar to the one implemented in 2015 for guaranteed asset protection (GAP) insurance in the United Kingdom. The Financial Conduct Authority carried out a review of that model’s effectiveness in 20185 and found:

  • The model reduced Add-on Insurance sales materially, though with evidence of improved customer outcomes.
  • Standalone market sales increased, though by less than expected. Consumers did not seek out alternatives as much as had been hoped.
  • Product prices fell and loss ratios rose, though again by less than expected.

This is not to say, of course, that the Australian experience will be the same.


To finish, here are a few thoughts on the implications of the Model:

  • The Model will be easier to implement in situations where the process for purchasing the primary product or service takes at least a few days, as would normally be the case for new motor vehicles, than where the sale is made on a single occasion.
  • Its impact is likely to be material for online sales, where many transactions are instantaneous. Consumers who know they want insurance are unlikely to wait for a deferral period when other providers are only a click away.
  • It may be challenging to comply with the Model at all for some Add-on Insurance products (for instance, travel insurance benefits attached to credit cards).
  • It will likely become more difficult for consumers to include insurance premiums in their finance arrangements. To do so would presumably involve an adjustment to the loan (or at least the loan application) after completion of the deferred sales period.
  • Insurers and distributors will need systems capable of capturing the key elements of the Model, including the occurrence of a financial commitment trigger, provision of prescribed information and records of subsequent consumer communications. These may form part of the broader systems and processes currently being implemented to meet Product Design and Distribution requirements.
  • Compliance with distribution conditions needed to meet Product Design and Distribution requirements, such as asking consumers knock-out and qualifying questions, will in many cases need to follow completion of the deferred sales period. This could result in some consumers being advised that they are outside of the target market for the product after completion of that period.
  • It is possible that implementation of the Deferred Sales Model will result in the growth of direct competition to some products which traditionally have only been sold as Add-on Insurance. Based on the UK experience, though, this might need an innovative approach to distribution.

Next steps?

Treasury has invited submissions on its proposal, though has offered only a short period, asking for them to be made by 30 September 2019. Treasury notes that feedback should be focussed on how the measure can best be implemented, not on whether it should be implemented.

Draft legislation is to be introduced into Parliament by 30 June 2020. Treasury has signalled that that will include a transition period, though without stating how long that will be.

For more information on how Treasury’s proposed Deferred Sales Model will apply to Add-on Insurance products, please contact insurance advisory principal, Mathew Kaley.

1 Treasury Proposal Paper, Reforms to the sale of add-on insurance products, 9 September 2019
2 General Insurance Code Governance Committee, Who is selling insurance?, June 2018, pp 20-22
3 Treasury refers to these as Tier Three products. Tier Two products will be subject to the Deferred Sales Model. Tier One products are those which cause “significant consumer detriment”, so are to be addressed by ASIC using its product intervention power.
4 Productivity Commission Inquiry Report, Competition in the Australian Financial System, 29 June 2018
5 FCA Report, Evaluation Paper 18/1: An evaluation of our guaranteed asset protection insurance intervention, July 2018

published by

Recent Insights

View all
Litigation and Dispute Resolution

Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract.   Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan
29 August, 2023

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty.  The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes
18 August, 2023
Litigation and Dispute Resolution

Expert evidence – The letter of instruction and involvement of lawyers

The recent decision in New Aim Pty Ltd v Leung [2023] FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.

Published by Justin Pennay
10 August, 2023