Alert

Who does this affect?

AFS licensees who are general insurance intermediaries including insurers where they are acting as intermediaries for other insurers

What do you need to do?

Consider what systems need to be implemented to comply with the new requirements and whether to comment on the draft regulations and explanatory material. The closing date for submissions is 8 October 2009. We can help.

Author
Ann Newbrun  
Special Counsel

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Philip Ward  
Partner
T +61 2 9296 2213

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Peter Stockdale  
Partner
T +61 2 9296 2330

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Sydney
Ann Newbrun  

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On Friday 11 September 2009, Treasury released draft Corporations Amendment Regulations 2009, a draft Explanatory Statement and a Consultation Paper for data collection and reporting requirements addressing the last outstanding element of the DOFI/UFI (unauthorised foreign insurer) reform package which became effective on 1 July last year.

By way of background, this reform expanded and clarified the scope of conduct that would amount to carrying on insurance business in Australia and therefore trigger the requirement for an insurer to be authorised by the Australian Prudential Regulation Authority (APRA) subject to the following exemptions (see link for explanation of these exemptions):

• the high value insured (HVI) exemption

• the atypical risk exemption

• the customised exemption, and

• the foreign laws exemption.

According to the Consultation Paper and the Explanatory Statement, the objectives of the data collection are to:

• monitor the use of the limited exemption arrangements and assist in the modification of those arrangements over time, and

• enable a better understanding of the Australian general insurance market by obtaining data on the intermediation of general insurance products.

What information is to be reported?

There are three levels of reporting. General insurance intermediaries will be required to provide to APRA every six months:

• aggregate data on insurance contracts entered into as a result of dealing with APRA authorised general insurers, Lloyd’s underwriters and UFIs

• transaction level data on insurance contracts entered into as a result of dealing with UFIs including premium payable, the UFI’s name, its country of domicile and the kind of loss or liability insured. Explanation of the exemption used will be required such as data on the size of a high value insured, type of atypical risk and reason for using the customised exemption, and

• transaction level data on every atypical risk related insurance contract entered into as a result of dealing with an APRA authorised general insurer, Lloyd’s underwriter or UFI.

Reinsurance and retrocession contracts are excluded.

Monitoring dealings with discretionary mutual funds (DMFs) will not proceed because APRA already collects data under a different regime. However, to ensure that DMFs are providing data to APRA, AFS licensees that are authorised to deal in ‘miscellaneous financial risk products’ will be required to provide information about DMFs they have dealt with. Those details will be passed to APRA.

Who must report?

The reporting obligation is placed on Australian financial services (AFS) licensees authorised under the Corporations Act 2001 (Cth) to deal in general insurance products. ‘Dealing’ is a defined term in the Corporations Act (section 766C) and includes applying for, issuing, varying or disposing of a general insurance product. It also includes arranging for a person to engage in that conduct unless the actions amount to providing financial product advice.

This will include general insurance brokers and underwriting agents. To avoid double counting, where there are two or more general insurance intermediaries dealing with the same policy, only the intermediary that deals directly with the underwriter will be required to report on that policy.

An AFS licensee that is also an APRA authorised general insurer will not be required to provide data on general insurance products that it issues because APRA authorised general insurers already provide data to APRA under a different regime. However, they will be required to report where they are acting as intermediaries for other insurers.

Ensuring data is sufficiently complete, reliable and verifiable may form part of compliance with the general obligation in s912A(1)(h) that an AFS licensee have adequate risk management systems (unless it is regulated by APRA). Failure to submit data (including additional data and resubmissions requested by APRA) or to correct errors or omissions in the data will be a breach of AFS licence obligations. In addition, a failure to provide the required data will be a strict liability offence.

Structure of the reporting process

APRA will be acting as an agent of the Australian Securities and Investments Commission (ASIC) in the data collection process. According to the Explanatory Statement, APRA will be acting solely in its role as a national statistical collection agency for the Australian financial sector, not as a prudential regulator.

The data will be collected in two reporting forms every six months. The first formal collection of data will cover the period 1 November to 31 December 2009 and this must be submitted by 26 February 2010. This initial collection is aimed at verifying systems and procedures. Intermediaries will therefore need to have systems in place by 1 November 2009 to collect and manage the data. Whilst not a strict requirement of the first collection, intermediaries will be requested to provide any available data covering the period 1 July 2009 to 31 October 2009 on a best endeavours basis.

Data publication

APRA will publish key data provided by general insurance intermediaries in aggregate every 6 months. No data identifying individual general insurance intermediaries is intended to be published. Sample tables and a distribution chart are provided in the Consultation Paper.

What’s next?

The Treasury is seeking submissions from interested persons about the following matters:

• the practicality of collecting the data specified in the two forms

• the practicality of lodging data with APRA either in paper form, or electronically using the “direct to APRA” (D2A) system, and

• the publication of data in aggregate.

The closing date for submissions is 8 October 2009.

AFS licensees who deal in general insurance products should consider the way in which they will comply with these new data collection and reporting requirements and whether it will impact their business in practice.