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Insurers fear 'consumer detriment' from draft product laws

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The Insurance Council of Australia (ICA) has submitted proposals to avert “significant consumer detriment” it believes could arise from the draft Product Design and Distribution Obligations Regulations.

The treatment of policy renewals is the focus of the ICA submission to Treasury.

A renewal is treated as a reissuing of the policy in the current draft, which means an insurer needs to verify that the policyholder is still within its target market determination.

“This could lead to significant consumer detriment given that a large proportion of policyholders will not be contactable by telephone or web portals at any given point in time,” the submission says.

“Unsuspecting policyholders will inadvertently lose their coverage if they are unable to make active acknowledgments at renewal. Severe financial detriment could arise particularly for policyholders caught up in natural disasters.”

The ICA has suggested new regulations that would provide insurers with certainty over their obligations to the new product design and distribution regime.

This could be achieved with insurers asking policyholders to disclose any change to their circumstances at renewal each year.

Policyholders would be in the target market if an insurer:

  • gives a description of the target market or a record of any questions previously asked to determine if the policyholder was in the target market
  • asks the policyholder to tell them if anything has changed
  • where required, provide a warning of limits to cover and examples of people not in the target market; and
  • the policyholder does not contact the insurer to tell them anything has changed.

Click here for the ICA submission.