Commonwealth Numbered Regulations - Explanatory Statements

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INSURANCE CONTRACTS REGULATIONS (AMENDMENT) 1994 NO. 327

EXPLANATORY STATEMENT

Statutory Rule 1994 No. 327

Issued by the authority of the Treasurer

Insurance Contracts Act 1984

Insurance Contracts Regulations (Amendment)

The Insurance Contracts Act 1984 (the Act) creates a framework for improving the flow of information from the insurer to the insured to enable the insured to make an informed choice and to be fully aware of the terms of the policy. The Act also seeks to set out a uniform and fair set of rules to govern the relationship between the insurer and the insured.

Amendments to the Act effected by the Insurance Laws Amendment Act (No. 2) 1994 will, upon commencement, require insurers offering Consumer Credit Insurance (CCI) to provide consumers with pre-sale, point of sale and post sale notices, and a minimum 14 day 'cooling-off' period.

The statutory notices introduced by the new section 71A will improve the capacity of purchasers of CCI to make informed decisions about insurance, particularly where it is sold as part of a complex package involving other financial transactions. The amendments envisage the making of regulations prescribing the form and contents of the statutory notices.

Section 78 of the Act provides for the making of Regulations by the Governor-General.

The amending Regulations will prescribe certain requirements as to the form and content of the statutory notices as provided for by, the new section 71A. Following is a brief summary of the requirements that each notice must meet:

Pre-sale brochure

Insurers' pre-sale CCI brochures must be readily available at all points of sale and must be handed to persons expressing an interest in, or reveal a need for the CCI product, or with whom the insurer has concluded a sale.

The pre-sale brochure can be product specific and styled to the individual insurer's document format provided that it contains:

•       a brief explanation of the purpose of CCI and the general nature of CCI (the latter in terms reflecting the definition of CCI contained in regulation 33(4));

•       statements that CCI is not a condition of the granting of consumer credit (unless the State allows such conditions) and that it is important for the insured to read the policy document carefully;

•       the insurer's name and address; and

•       details about the insurer's dispute resolution mechanisms and, if the insurer is a member of the industry scheme, that scheme.

Furthermore, the brochure must be clearly legible and expressed in a clear and straightforward style.

Point-of-sale notice

Under section 71A(3) of the Act insurers will be required, immediately before a contract of insurance is entered into, to give the proposed insured the statutory point-of-sale notice. That notice must:

•       be clearly distinguishable from any documents to which it is attached or forms a part, and have minimum dimensions of 160mm x 200mm; and

•       take the form, and contain the information, set out in the prescribed notice, unless the inclusion of certain prescribed information may mislead consumers.

In addition, where the CCI is sold or arranged in person by the insurer (or an agent of the insurer), the insurer must ensure that the declaration at the foot of the notice is signed and dated by the insured.

Post-sale letter

Insurers must send purchasers of CCI a letter confirming the sale. Again this letter can be product specific and adopt the documentation format commonly used by the insurer provided that it contains:

•       statements that the consumer has purchased CCI in respect of a specified credit agreement and that they should refer to the policy for details of their cover;

•       an indication of the premium paid where the CCI is a single premium product;

•       a 'benefits box' in the prescribed format, and containing the type of information prescribed;

•       notice of the applicable 'cooling-off period and the relevant cancellation procedures;

•       contact details in respect of any queries the consumer may have about the CCI; and

•       information about the insurer's dispute resolution mechanisms and, if the insurer is a member of the industry scheme, that scheme.

The letter should be written in clear and straightforward style and be clearly legible. Furthermore, it should be accompanied by a copy of the policy (if it hasn't been already provided), but must not be accompanied by any promotional materials.

The Regulations are described in detail in the Attachment.

ATTACHMENT

Insurance Contracts Regulations (Amendment)

Regulation 1 -- Commencement

Except for the amendments made by Regulation 5, the amendments to the Insurance Contracts Regulations (the Regulations) commence on the date of commencement of item 11 of the Schedule to the Insurance Laws Amendment Act (No. 2) 1994. Item 11 of that amending Act will add a new section 71A to the Insurance Contracts Act 1984 (the Act) which will require insurers offering Consumer Credit Insurance (CCI) to provide consumers with three statutory notices: a pre-sale notice, a point-of-sale notice and a post sale notice.

Regulation 5 contains a number of amendments to regulation 21 of the Regulations. Regulation 21 currently sets out a type of 'prescribed contract' for the purposes of section 34 of the Act. Section 35(3) of the Act states that Regulations made for the purposes of section 35 (which include those made under see 34) commence 60 days after notification in the Gazette. This requirement is reflected in amending regulation 1.2.

The effect of this staggered commencement is that life companies offering CCI, as defined by regulation 21 of the Regulations (as amended by Reg 5). will not be required to comply with the amending regulations until 60 days after they commence.

Regulation 2 -- Amendment

This regulation clarifies the purpose of the amending Regulations.

Regulation 3 -- New regulation 2A

This regulation inserts regulation 2A into the Regulations.

The definition of 'consumer credit insurance' found in item 3 of the Insurance Laws Amendment Act (No. 2) 1994 defines that term as meaning contracts that are prescribed for the purposes of sec 35 of the Act and are identified in the Regulations as consumer credit insurance. Regulation 2A identifies the contracts referred to in Regulation 21 as consumer credit insurance for the purposes of this definition.

Regulation 4

This regulation changes the reference in the Regulations to 'the Schedule' to 'Schedule 1', thereby allowing for the creation of a number of Schedules to the Regulations, or more specifically Schedule 2, which constitutes the prescribed point-of-sale notice.

Regulation 5 -- Regulation 21 (Prescribed contracts)

As stated above, 'consumer credit insurance' will be defined as meaning the class of contracts which are 'prescribed contracts' for the purposes of sections 34 and 35 of the Act and are identified in the Regulations as consumer credit insurance. The insertion of regulation 2A by the amendments will identify, the contracts referred to in regulation 21 as consumer credit insurance as required by the second part of that definition.

Regulations 21(e), (f) and (g) of the Regulations provide that 'life policies' (as defined by the Life Insurance Act 1945), continuous disability insurance accompanying such life policies, and continuing CCI contracts are not 'prescribed contracts' for the purposes of sections 34 and 35 of the Act.

Regulation 5.3 amends regulation 21 by deleting these exclusions, thereby clarifying that all CCI insurers, whether life companies or general companies, comply with the same notification requirements. and that continuing CCI products also fall under the new disclosure regime.

As a consequence of this amendment life insurers offering products that satisfy the definition of CCI in the Act, and continuing CCI providers, will be subject to section 35 of the Act for the first time.

Regulation 6 -- New regulations 33, 34 and 35

Regulation 6 inserts regulations 33, 34 and 35 into the regulations. These regulations prescribe the format and content requirements for the pre-sale notice, point-of-sale notice and post sale letters provided for by section 71A of the Act.

The requirements of regulations 33, 34 and 35 are discussed below:

Pre-sale brochure - Regulation 33

Insurers' pre-sale CCI brochure must be readily, available at all points of sale and must be handed to persons expressing an interest in, or reveal a need for the CCI product, or with whom the insurer has concluded a sale: (33(1)).

The pre-sale brochure can be product specific and styled to the individual insurer's document format provided that it contains:

•       a brief explanation of the purpose of CCI and the general nature of CCI (the latter in terms reflecting the definition of CCI contained in subregulation 33(4)) - paragraphs 33(2)(a), (b) and 33(4);

•       statements that CCI is not a condition of the granting of consumer credit (except on documents for use in a State which allows such conditions) and that it is important for the insured to read the policy, document carefully - paragraph 33(2)(c);

•       the insurer's name and address - paragraph 33(2)(e); and

•       details about the insurer's dispute resolution mechanisms and, if a party, to a industry scheme, that scheme - paragraph 33(2)(d).

Furthermore, the brochure must be clearly legible and be expressed in a clear and straightforward style - subregulation 33(3).

Point-of-sale notice - Regulation 34

Under subsection 71A(3) of the Act insurers will be required, immediately before a contract of insurance is entered into, to give the proposed insured the statutory point-of-sale notice. That notice must:

•       be clearly distinguishable from any documents to which it is attached or forms a part, and have minimum dimensions of 160mm x 200mm - regulation 34(2); and

•       take the form, and contain the information, set out in the prescribed notice, unless the inclusion of certain prescribed information may mislead consumers subregulations 33(3) and (4);

In addition, where the CCI is sold or arranged in person by the insurer (or an agent of the insurer), the insurer must ensure that the declaration at the foot of the notice is signed and dated by the insured - subregulation 34(5).

Post-sale letter - Regulation 35

Insurers must send purchasers of CCI a letter confirming the sale. Again this letter can be product specific and adopt the documentation format commonly used by, the insurer provided that it contains:

•       statements that the consumer has purchased CCI in respect of a specified credit agreement and that they should refer to the policy for details of their cover paragraphs 35(1)(a) and (b),

•       an indication of the premium paid where the CCI is a single premium product paragraph 35(1)(c);

•       a 'benefits box' in the prescribed format, and containing the type of information prescribed -paragraph 55(1)(g);

•       notice of the applicable 'cooling-off' period and the relevant cancellation procedures paragraph 35(1)(d);

•       contact details in respect of any queries the consumer may, have about the CCI paragraph 35(1)(f); and

•       information about the insurer's dispute resolution mechanisms and, if the insurer is a member of the industry scheme, that scheme - paragraph 35(1)(e).

The letter should be written in clear and straightforward style and be clearly legible. Furthermore, it should be accompanied by a copy of the policy (if it hasn't been already provided), but must not be accompanied by any promotional materials - subregulation 35(2).


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