So we get it – as a result of some pretty poor conduct by insurers and claims representatives over time, we are falling into line with many other countries where claims management is regulated. It’s a pretty diverse world, this one of claims, and it probably isn’t a surprise that in trying to regulate it, it is as much about the exemptions as it is the inclusions. If everyone stayed in their lane, this just might work! If brokers were brokers, adjusters just that, lawyers gave legal advice and claims managers…managed claims. Alas, I don’t think there is much chance of that happening, so we will see how it plays out. Simple never seems the answer to regulation!
The AFSL
We lodged our AFSL on May 7. It was always our plan to submit in May, for the June 30 deadline. However, I am sure we weren’t the only one raising our eyebrows when ASIC (during April mind you) sent out a circular with a strong recommendation that the application be submitted by May 7 so any issues could be identified prior to June 30. In any event, we made it, thanks to the assistance of our consultant MSM. It was a time consuming process with extensive financial documentation required in support of the application. I was a little surprised that it differed somewhat from the traditional claims due diligence we get from insurers in that it was more about financial health and capability than claims systems, process and expertise, but to be fair to ASIC they aren’t an insurer.
How did it come to this?
Prior to the Royal Commission into financial services, claims management was exempt from the definition of providing financial services, so no AFSL was required. There was some self-regulation through a Code of Practice and we follow a pretty rigorous complaints process, but it only took a few horror stories at the Royal Commission to change the standard. And yes the stories were bad, but they didn’t get to hear about the vast majority of claims that are handled well. Anyway, if you are a company providing claims handling and settlement services on behalf of an insurer, you require an AFSL from July 1. Probably. If you aren’t exempt. Generally or specifically.
So what is claim handling?
The definition of claims handling and settlement services is cast widely under the legislation, and includes everything from making recommendations or decisions on claims, quantifying claims, to settling claims. It also extends to representing or assisting a claimant in pursuing a claim.
It is a broad definition. While clearly a company like Proclaim and our core business fits comfortably within this definition, what about brokers, adjusters, investigators, experts and lawyers who may do some or all of these functions? Subject to exemptions, if you supply claim services on behalf of an insurer, you may be caught. Brokers who manage claims under authority from an insurer would need a license, although not if they manage a claim for an insured. Builders and suppliers can also be caught if they have the authority to reject part or all of a claim.
What is the mischief we are trying to prevent?
The regulations are trying to encourage a higher level of claim service and in particular hold licensees accountable for a minimum standard of timeliness, transparency (including setting clear expectations) and fairness. They also want claim managers to take into account the circumstances of the claimant (particularly if they are suffering financial hardship or are otherwise vulnerable). In some cases there is also an onus on clear and timely communication.
That sounds very broad ….are there exceptions?
Oh yes…..there are very important exemptions which really do narrow the areas of impact.
For example, there is a general exemption for service providers to an insurance claim manager such as us – for experts, adjusters and investigators – where they aren’t the claim manager. In these cases it looks like the responsibility will lie with the licensed claim manager for the conduct of the claim. Hence the importance of clear expectations of roles and service from adjusters and experts has increased, and it’s going to be more important than ever that experts stay in their lane and the claim managers do the communication on coverage and negotiate on settlement.
There is also a specific (as opposed to general) exemption for legal advice, so lawyers can provide advice on things like coverage and settlement without requiring a license.
The exemptions largely mean there will be one licensee accountable for the standards of claim service, and that would tend to be the Claim Manager.
However, the exceptions don’t end there. The general insurance world has traditionally been split into two parts – domestic, or what is known largely as retail, and commercial, which is largely wholesale business. Clearly there has been some effective lobbying from the Insurance Council to provide exemptions for wholesale business, where (at least traditionally) policyholders have used insurance brokers as their advisors and arguably should not be getting the same protection as Joe or Jen Public.
Of particular interest to Lloyd’s and local insurers are two exemptions added to clarify their position, First, there is an APRA regulated insurer exemption for claims handling and settling services to wholesale clients, s 911A(2)(a)(ii)), Effectively wholesale clients – those largely commercial in nature – are not included and remain exempt. For retail clients the position for underwriters like Lloyd’s is a little trickier. Their local claim representative – which could be a claim company like us with delegated authority – or an underwriting agent with similar authority – would need to hold an AFSL. Underwriters can go without one by relying on the exemption in 911 A (2) (el)[1] where the claim handling is done under an agreement with an AFSL holder. But this effectively means any dealings with the policyholder should go through their licensed claims agent. This makes sense, but can become problematic if we get situations where authority is limited locally. For those decisions outside an agent’s authority and control, can they be held responsible? Well we hope we can agree some sharp turnaround times in those situations as we wouldn’t want it to come to that.
Boy that’s all very complicated, so what’s it all mean?
After all that, what’s changed? Commercial claims largely stay as they were – exempt from licensing requirements (when an APRA regulated insurer is involved) but still regulated by the Code, Insurance Contracts Act, not to mention costs of litigation, social media and brand reputation. Stakes are already pretty high.
We will need to consider any wholesale claims on behalf of a non APRA regulated insurer. Funnily enough, there is another exemption at 911A 2(g) which may assist them. In this hard market there are some non APRA regulated insurers playing, but not as prominently as in the last hard market. If we are to act on their behalf we do need to see if they fit under the (g) exemption or weigh the burden we wear as AFSL holder for a non-regulated entity. The complexity increases, as does the pressure.
So it looks like it skinnied down to largely retail claims now?
Yes, under the new legislation you need to have an AFSL if you plan to manage retail claims. Retail is pretty much aimed squarely at domestic policies for individuals and small business and includes motor, home building, home contents, domestic property as well as sickness and accident and travel. (Small business is less than 100 people size for manufacturing, and less than 20 otherwise).
For retail claims there is one important change – where a cash settlement is being offered and it isn’t the only possible basis of settlement (So repair or replacement or other forms of settlement available) then a cash settlement sheet needs to be provided. While formal, it’s in the spirit of clear and transparent communication.
While our portfolio is currently skewed to wholesale claims, we do have pockets of retail claims and plan to utilise systems based technology to advance further into this area in future. For example, we currently manage accident and health claims, domestic property under farm packs, as well as residential strata and some motor claims.
Are you exhausted yet?
Sorry, that’s a very long way of saying – yes we did lodge our application for an AFSL – but for large parts of our business an AFSL will not be necessary. For wholesale clients –for APRA regulated insurers – exempt. For our corporate clients with under excess claims, that is not a service under an insurance product or for an insurer, so exempt. It leaves retail clients, but that’s probably not the main point in all this.
Recently we had a case come out of AFCA that wasn’t in their jurisdiction, as it was a third party claiming against one of our insureds. Even though technically we didn’t need to provide an internal dispute resolution service, we decided to do that out of principles of fairness. And I think that’s the point. Yes there is all this regulation that is largely complicated and confusing, but if we just apply some pretty basic principles of service and fairness across all our claims – exempt as well as included – I think we will all be better off.
So – yes we plan to provide a service of excellence that does take into account the requirements of the new legislation.
And Yes – we plan to do it under both retail and wholesale claims.
So was this legislation worth the effort given how watered down it has become? Probably….
[1] You can read the full document “CORPORATIONS ACT 2001 – SECT 911A – Need for an Australian financial services licence” here: http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s911a.html
