The Australian Securities and Investments Commission (ASIC) has today provided draft details of how insurance claims handling will be regulated as a financial service when legislation for the Hayne royal commission proposal is passed in Parliament.

A Bill covering the reform and other royal commission proposals such as add-on sales and hawking has already been introduced in Parliament this month.

The ASIC draft information sheet says an Australian Financial Services (AFS) licence is mandatory for anyone who is involved in claims handling and settling starting from January 1 2022.

This licensing requirement will apply to insurers, insurance claims managers, tradespersons who can reject claims on behalf of an insurer, brokers, financial advisers and claimant intermediaries who are defined as people that run a business representing customers to pursue insurance claims for rewards.

For entities that already have an AFS licence, they will need to apply for a variation to their licence so it covers the new financial service of claims handling and settling.

Claims handling services are exempted from the definition of “financial service” under the Corporations Act but the Hayne royal commission called for a change to the status quo, saying it will improve consumer protection.

The ASIC draft information sheet says AFS licensees must handle and settle insurance claims in a timely way; in the least onerous and intrusive way possible, fairly and transparently; and in a way that supports consumers, particularly ones who are experiencing vulnerability or financial hardship.

On transparency and fairness, this means claimants must be kept regularly updated about the progress of their claims and given an explanation when a claim is rejected. They need to be informed of their rights to make a complaint and how to access internal and external dispute resolution avenues.

ASIC says it expects to start taking applications for AFS licences and variations to existing licences from January 1 next year. During the transition period between July and December, claims handling and settlement can only be provided if a complete application was lodged by June 30 and it has either been granted or is still pending.

The regulator will issue the final information sheet and proof document, incorporating any changes to the legislation during passage of the Bill, ahead of the commencement of the reforms.

The Financial Rights Legal Centre, a consumer advocate, has commended ASIC for moving quickly to provide guidance to the insurance industry.

Director of Casework Alexandra Kelly also backs the move to regulate so-called storm-chasers, telling insuranceNEWS.com.au bringing them into the fold “should also give vulnerable communities hit by the next natural disaster some protection against any egregious behaviour by this small but growing sector.”

The Insurance Council of Australia has previously said the claims-handling reform should require currently unregulated insurance claims advocates to hold licences.

Click here for the ASIC draft information sheet.