Insurance Claims Handling and Settling

Who does this affect?

Businesses or representatives that fall into the following categories must hold an Australian Financial Services Licence (AFSL) with a claims handling authorisation:

  • Insurers;
  • Insurance Fulfilment Providers;
  • Claims Managers;
  • Claimant Intermediaries;
  • Insurance Brokers; and
  • Financial Advisers (subject to exemptions).

The requirement to hold an AFSL with a claims handling authorisation is limited to those with the authority to reject all or part of a claim. You are not required to hold an AFSL if you are merely giving a recommendation or opinion which is reasonably necessary as part of the handling and settling process as this is not considered providing financial product advice. However, if you recommend an insurance product or provide an opinion on how a settlement amount is to be structured, then you will be providing financial product advice, and therefore require an AFSL.

Exemptions

General Exemption

You will not need to hold an AFSL with a claims handling authorisation unless you fall into the categories mentioned above. Below are examples of categories where an AFSL with such authorisations is not required:

  • loss assessors or loss adjusters;
  • specialists who are providing expert opinion to help an insurer access a claim;
  • investigators;
  • other “fulfilment providers” (unless they are authorised to reject claims);
  • independent medical examiners;
  • debt collection agents; and
  • superannuation trustees.

 

general exemptions

Specific Exemption

If one of the following services are provided, you are specifically exempted from the requirement to hold an AFSL with a claims handling authorisation:

  • Professional legal services provided by a lawyer in a professional capacity relating to insurance claims handling and settling;
  • claims handling and settling services provided to a wholesale client under an arrangement between an AFSL holder and the issuer of the insurance;
  • claims handling and settling services provided to a person under an arrangement between an AFSL holder and the issuer of the insurance product prescribed by regulation; and
  • you fall within one of the categories of exclusions of a claimant intermediary as per section 911A(2) of the Corporations Act 2001 (Cth).

Financial Advisers who are currently authorised under an AFSL to provide financial product advice are excluded from the definition of claimant intermediary and therefore do not require additional AFSL coverage. Financial advisers can either be authorised:

  • as an employee of a licensed entity whose AFSL covers the provision of financial product advice; or
  • as an authorised representative of an AFSL where their authorisation covers the provision of financial product advice. 

Insurance Brokers within the meaning of the Insurance Contracts Act 1984 i.e. those persons who carry on a business of arranging contracts of insurance, whether in Australia or elsewhere, as agent for intending insureds, are also excluded from the definition of claimant intermediary and do not require additional AFSL coverage.

 

specific exemption

Meaning of Claimant Intermediaries:

Section 761CCA(1) of the Corporations Act notes that a person is a claimant intermediary, if a person:

  • carries on a business of representing persons insured under insurance products in pursuing claims under those products; and
  • represents persons insured for a benefit given as consideration for that service (monetary or non-monetary).

Who else is excluded from being a claimant intermediary?

The following persons are excluded from the classification of a claimant intermediary:

  • mortgage brokers and mortgage intermediaries;
  • qualified accountants;
  • veterinarians;
  • travel agents;
  • financial counsellors;
  • property managers;
  • estate management; and
  • public trustees.

Ongoing Obligations and Relief 

Claims Handling and settling AFSLs are subject to the same obligations as other licence holders. You can find further information about these obligations and how Sophie Grace can assist here.

Cash Settlement Fact Sheets

AFSL holders that provide claims handling and settling services are required to provide a Cash Settlement Fact Sheet (CSFS). The CSFS must be provided at the time a cash settlement offer is made and must include prescribed information. This obligation arises when an AFS Licensee:

  • offers retail clients a cash payment to settle all or part of a general insurance claim; and
  • there are other legally available options to settle the claim (i.e., repair or replacement).

The obligation to provide a CSFS applies to the AFSL holder, any Authorised Representatives, and any person acting on behalf of the AFSL holder at the time the cash settlement offer is made.

In February 2022, ASIC implemented relief for claims handling and settling AFS licensees in relation to the provision of a CSFS. The relief allows licensees to make a cash settlement offer in emergency situations or in cases of immediate need without first providing a CSFS. This relief is conditional and will expire in 2025.

To be able to rely on the relief, the following requirements must be met:

  • the client has expressly instructed the AFS Licensee they are in immediate need of a cash payment;
  • the verbal cash settlement offer has been made within 14 days of the insurable event that is the subject of the claim; and
  • the cash settlement offer (and any other immediate cash payments under the claim) does not exceed $5,000.

If the above requirements are satisfied, there are further actions the AFS licensee is required to complete.

If you are unsure whether you meet the above requirements or require further information regarding next steps, please contact Sophie Grace here.

Additionally, there is a Cash Settlement Fact Sheet template available for purchase through our online shop.

Sub Authorised Representative Appointment Relief

ASIC has removed the obligation for insurance claims handling and settling providers to notify ASIC of the sub-authorisation of employees under their AFSL.

This means that if you intend to appoint authorised representatives which are corporate entities, you do not also need to notify ASIC of the appointment of employees of these corporate entities.

ASIC has implemented this change as they have acknowledged that the appointment of sub-authorised representatives by claims handling AFSL Holders is likely to create an unnecessary administrative burden and result in limited consumer benefit. The appointment of all other authorised representatives, including individual representatives must be notified to ASIC within thirty (30) business days of the date an authorisation is issued. 

Regardless of the relief, the general conduct obligations still apply to both authorised representatives and AFS Licensees. AFS Licensees also have the obligation to monitor and supervise all authorised representatives and their employees, regardless of whether the appointment has been notified to ASIC. 

Background

Claims handling and settling services were previously excluded from the definition of a “financial service” under Chapter 7 of the Corporations Act

In 2021, as a response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the Australian Securities and Investments Commission (ASIC) began accepting new Australian Financial Services Licence (AFSL) applications for providers of claims handling and settling services as well as variations to existing AFSLs to include the claims handling and settling authorisation.

The registration of the ASIC Supervisory Cost Recovery Levy Amendment (Claims Handling and Settling Services Providers) Regulations 2021 on 18 February 2021 provided further provisions relating to claims handling and settling services providers as leviable entities. 

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