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Distribution draft bill ‘may harm consumers’

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Product design and distribution draft legislation is poorly designed for insurance and may disadvantage consumers and brokers, according to industry submissions.

The Insurance Council of Australia (ICA) says the new rules may reduce rather than increase the likelihood of consumers buying cover suitable for their needs.

“We fear this will be accompanied by consumers having to face both more complex processes when buying and renewing policies, and higher premiums because of greater compliance costs,” its submission says.

The legislation requires suppliers to make “target market determinations” about who would buy their product, and requires distributors to sell to the identified segment.

The aim is to ensure people buy products that meet their needs, preventing mis-selling.

ICA says the draft bill sometimes operates at too generic a level, while at other times it is too prescriptive.

It calls for the Government to delay introduction of the bill until issues are resolved.

“The variability, as between consumers and for any individual consumer across time and life circumstances, requires general insurers to offer a range of product offerings,” ICA says.

The National Insurance Brokers Association warns there is a lack of clarity about the level at which the target market should be identified, creating compliance risk for insurers, their agents and others.

“How would it work where the product has various options that may or may not be appropriate for various sub-classes?” it says.

The association says the new rules may also cause problems with broker best-interests obligations when providing personal advice.

“If it is in the client’s best interests to purchase a particular policy but the client does not fall within the target market for that policy as set out in the target market determination, which statutory duty does the insurance broker breach?”