Risk Regulatory Update

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Financial services reforms kick in

This week significant and wide-ranging reforms of the financial services industry are implemented. One of the largest reforms, the mandatory Design and Distribution Obligations (DDO) start on Tuesday 5 October, set to improve consumer outcomes. As part of the DDO, financial services businesses must determine which sort of consumers are the target market for their products, and work so that sales are only directed at customers in that target market. The changes are to ensure compliance with the law.

Other reforms coming into effect this month include:

  • Individual Disability Income Insurance reforms

  • Reference checking and information sharing

  • New breach reporting requirements

  • Duty to take reasonable care not to make a misrepresentation

  • Anti-hawking reforms

  • Deferred sales for add-on insurance

  • Internal dispute resolution

 APRA’s new rules on IP cover

The Australian Prudential Regulation Authority (APRA) has introduced new rules for income protection insurance to stem the losses - over $3 billion across the last five years. Changes include:

  • Reducing maximum pre-disability annual income that can be claimed from 75 per cent to 70 per cent, with a cap of 90 per cent of annual income for the first six months.

  • Individuals can no longer make an extended claim indefinitely when they are unable to return to their previous occupation. After two years, a policy will switch to any occupation that a customer can do based on education, training or experience.

  • Pre-disability income can only be taken from the previous 12 months prior to the claim, with a reason needed for an insurer to look beyond this timeframe, for example, maternity leave.