Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (135 of 2020)

Schedule 3   Deferred sales model for add-on insurance

Australian Securities and Investments Commission Act 2001

2   After Subdivision D of Division 2 of Part 2

Insert:

Subdivision DA - Deferred sales for add-on insurance products

12DO Meaning of add-on insurance product

(1) An add-on insurance product , in relation to another product or service (the principal product or service ), is a financial product that:

(a) is offered or sold to a consumer (the customer ) in connection with the customer acquiring, or entering into a commitment to acquire, the principal product or service; and

(b) is offered or sold by:

(i) the provider of the principal product or service; or

(ii) another person, in accordance with an arrangement to which the provider of the principal product or service is a party; and

(c) manages financial risk (within the meaning of section 12BAA) relating to the principal product or service; and

(d) either:

(i) is a contract of insurance; or

(ii) provides for the customer to benefit from a contract of insurance to which the provider of the financial product is a party.

(2) For the purposes of subsection (1), contract of insurance includes:

(a) a contract that would ordinarily be regarded as a contract of insurance even if some of its provisions are not by way of insurance; and

(b) a contract that includes provisions of insurance in so far as those provisions are concerned, even if the contract would not ordinarily be regarded as a contract of insurance.

(3) The regulations may provide that a customer is, for the purposes of this Subdivision, taken to have entered into a commitment to acquire a product or service of a specified class at a time specified in the regulations.

12DP Meaning of add-on insurance deferral period and add-on insurance pre-deferral period

(1) If a person (the customer ) who acquires, or enters into a commitment to acquire, a product or service (the principal product or service ) is given the information determined under paragraph (4)(a), in the form and manner determined under paragraph (4)(b), in connection with the acquisition or proposed acquisition, then:

(a) there is an add-on insurance deferral period in relation to the customer acquiring, or entering into a commitment to acquire, the principal product or service; and

(b) the add-on insurance deferral period is the period beginning at the later of:

(i) the time the customer enters into the commitment (or, if the customer acquires the principal product or service without previously entering into a commitment to do so, the time the customer acquires the principal product or service); and

(ii) the time the customer is given the information;

and ending at the end of 4 days after the day on which the period begins.

(2) If the information determined under paragraph (4)(a) is not given in the form and manner determined under paragraph (4)(b) in connection with the acquisition or proposed acquisition, there is no add-on insurance deferral period in relation to the customer acquiring, or entering into a commitment to acquire, the principal product or service.

Note: There is no obligation for a person who provides a product or service to give the information to a customer. However, if the information is not given and there is no add-on insurance deferral period, certain conduct relating to the sale or offer of add-on insurance products may be prohibited (see sections 12DQ to 12DR).

(3) The add-on insurance pre-deferral period in relation to the principal product or service is a period that:

(a) begins when the customer indicates an intention to acquire the principal product or service; and

(b) if there is an add-on insurance deferral period in relation to the customer acquiring, or entering into a commitment to acquire, the principal product or service - ends immediately before the start of that period; and

(c) if there is no such add-on insurance deferral period - does not end.

(4) ASIC may, by legislative instrument, determine the following:

(a) information to be given for the purposes of subsection (1);

(b) the form and manner in which the information is to be given (which may require the information to be given to a particular customer each time the customer enters into a commitment to acquire, or acquires, the products or services).

(5) Information determined under paragraph (4)(a):

(a) must include information that relates to a customer giving notice that the customer does not want to receive:

(i) offers of add-on insurance products; or

(ii) requests or invitations for the customer to ask or apply for add-on insurance products;

in relation to the principal product or service; and

(b) may include information relating to any other matter that ASIC thinks appropriate.

12DQ Prohibition on selling add-on insurance products before end of add-on insurance deferral period etc.

Contraventions by provider of principal product or service

(1) A person (the first person ) contravenes this subsection if:

(a) another person (the customer ) acquires, or enters into a commitment to acquire, a product or service (the principal product or service ) from the first person; and

(b) the first person also sells a financial product to the customer; and

(c) the financial product is an add-on insurance product in relation to the principal product or service.

Note: Failure to comply with this subsection is an offence (see section 12GB).

(2) A person (the first person ) contravenes this subsection if:

(a) another person (the customer ) acquires, or enters into a commitment to acquire, a product or service (the principal product or service ) from the first person; and

(b) a third person sells the customer a financial product that is an add-on insurance product in relation to the principal product or service.

Note: Failure to comply with this subsection is an offence (see section 12GB).

Exception for sale after add-on insurance deferral period

(3) Subsections (1) and (2) do not apply if:

(a) there is an add-on insurance deferral period in relation to the customer acquiring, or entering into a commitment to acquire, the principal product or service; and

(b) the add-on insurance product is sold to the customer after the end of the add-on insurance deferral period.

Note: A defendant bears an evidential burden in relation to the matter in subsection (3): see subsection 13.3(3) of the Criminal Code.

Contravention by third party provider

(4) A person (the third party provider ) contravenes this subsection if:

(a) the third party provider sells a financial product to a consumer (the customer ); and

(b) the financial product is an add-on insurance product in relation to a product or service (the principal product or service ) offered or provided by another person; and

(c) either:

(i) there is no add-on insurance deferral period in relation to the customer acquiring, or entering into a commitment to acquire, the principal product or service; or

(ii) there is such an add-on insurance deferral period, and the third party provider sells the add-on insurance product to the customer before the end of the period.

Note: Failure to comply with this subsection is an offence (see section 12GB).

Timing of sale

(5) For the purposes of this section, an add-on insurance product is taken to be sold to a customer no later than the first time at which no further action from the customer is required for the sale to occur (even if the sale does not occur until a later time).

12DR Prohibition on offering add-on insurance product during add-on insurance deferral period

Offer by provider of principal product or service

(1) A person (the principal provider ) contravenes this subsection if:

(a) another person (the customer ) acquires, or enters into a commitment to acquire, a product or service (the principal product or service ) from the principal provider; and

(b) the principal provider offers a financial product for issue or sale to the customer, or requests or invites the customer to ask or apply for a financial product or to purchase a financial product; and

(c) the financial product is an add-on insurance product in relation to the principal product or service; and

(d) the offer, request or invitation is made otherwise than in writing.

Note: Failure to comply with this subsection is an offence (see section 12GB).

Exceptions for subsection (1) - offer made outside add-on insurance deferral period

(2) Subsection (1) does not apply if the offer, request or invitation is made:

(a) during the add-on insurance pre-deferral period in relation to the principal product or service; or

(b) if there is an add-on insurance deferral period in relation to the customer acquiring, or entering into a commitment to acquire, the principal product or service - after the end of the period of 6 weeks beginning on the first day of the add-on insurance deferral period.

Note: A defendant bears an evidential burden in relation to the matter in subsection (2): see subsection 13.3(3) of the Criminal Code.

Offer by third party provider

(3) A person (the third party provider ) contravenes this subsection if:

(a) another person (the customer ) acquires, or enters into a commitment to acquire, a product or service (the principal product or service ); and

(b) the third party provider offers a financial product for issue or sale to the customer, or requests or invites the customer to ask or apply for a financial product or to purchase a financial product; and

(c) the financial product is an add-on insurance product in relation to the principal product or service; and

(d) the offer, request or invitation is made otherwise than in writing; and

(e) there is an add-on insurance deferral period in relation to the customer acquiring, or entering into a commitment to acquire, the principal product or service; and

(f) the offer, request or invitation is made during the period of 6 weeks beginning on the first day of the add-on insurance deferral period.

Note: Failure to comply with this subsection is an offence (see section 12GB).

Exception for subsections (1) and (3) - contact initiated by customer

(4) Subsections (1) and (3) do not apply if:

(a) the offer, request or invitation is made in response to contact initiated by the customer; and

(b) either:

(i) the offer, request or invitation is made after the end of the add-on insurance deferral period; or

(ii) the offer, request or invitation relates only to the purpose for which the customer initiated the contact.

Note: A defendant bears an evidential burden in relation to the matter in subsection (4): see subsection 13.3(3) of the Criminal Code.

12DS Prohibition on offering add-on insurance product - customer opt-out

(1) A person (the first person ) contravenes this subsection if:

(a) another person (the customer ) acquires, or enters into a commitment to acquire, a product or service (the principal product or service ); and

(b) the first person offers a financial product for issue or sale to the customer, or requests or invites the customer to ask or apply for a financial product or to purchase a financial product; and

(c) the financial product is an add-on insurance product in relation to the principal product or service; and

(d) before the offer, request or invitation is made, the customer informs the first person that the customer does not want to receive such offers, requests or invitations.

Note: Failure to comply with this subsection is an offence (see section 12GB).

(2) A person (the first person ) contravenes this subsection if:

(a) another person (the customer ) acquires, or enters into a commitment to acquire, a product or service (the principal product or service ); and

(b) the first person offers a financial product for issue or sale to the customer, or requests or invites the customer to ask or apply for a financial product or to purchase a financial product; and

(c) the financial product is an add-on insurance product in relation to the principal product or service; and

(d) before the offer, request or invitation is made, the customer informs any of the following that the customer does not want to receive such offers, requests or invitations:

(i) the person who provided the principal product or service (if that person is not the first person);

(ii) any person (other than the first person) with whom the person mentioned in subparagraph (i) has an arrangement of a kind mentioned in subparagraph 12DO(1)(b)(ii).

12DT Right of return and refund for add-on insurance product sold in contravention of section 12DQ

(1) If a person (the first person ) contravenes a subsection of section 12DQ in relation to an add-on insurance product sold (whether by the first person or by any other person) to another person (the customer ), the customer has a right of return and refund exercisable at any time during the period starting when the product was sold and ending:

(a) if, under section 1019B of the Corporations Act 2001, the customer has a right to return the product within a particular period - 1 month after the end of that period; or

(b) otherwise - 1 month and 14 days after the product was sold.

(2) If the add-on insurance product is returned under subsection (1):

(a) if the product is constituted by a legal relationship between the customer and any other person - by force of this section, that relationship is terminated, with effect from the time of the return, without penalty to the customer; and

(b) by force of this section, any contract for the acquisition of the product by the customer is terminated, with effect from the time of the return, without penalty to the customer.

(3) The amount of a refund paid under subsection (1) in relation to an add-on insurance product:

(a) must be the entire amount paid for the product; but

(b) may be reduced by any amount paid as a result of a claim under the product.

(4) This section applies in addition to any other penalties for or in relation to contraventions of section 12DQ.

12DU Exception for financial advisers

Section 12DQ does not apply in relation to the sale of an add-on insurance product, and sections 12DR and 12DS do not apply in relation to an offer to issue or sell an add-on insurance product, or a request or invitation to ask or apply for an add-on insurance product, by a person if:

(a) the person sells the add-on insurance product, or makes the offer, request or invitation, in the course of providing personal advice (within the meaning of Chapter 7 of the Corporations Act 2001) in circumstances where Division 2 (best interests obligations) of Part 7.7A of that Act applies; and

(b) the add-on insurance product relates to a principal product or service that is provided by the person, and that the person recommends in the course of providing the advice.

Note: A defendant bears an evidential burden in relation to the matter in this section: see subsection 13.3(3) of the Criminal Code.

12DV Exception for product covered by product intervention order

(1) Section 12DQ does not apply in relation to the sale of an add-on insurance product by a person if a product intervention order in force under Part 7.9A of the Corporations Act 2001:

(a) covers that sale; and

(b) provides for a period during which the product must not be sold.

Note: A defendant bears an evidential burden in relation to the matter in subsection (1): see subsection 13.3(3) of the Criminal Code.

(2) Sections 12DR and 12DS do not apply in relation to:

(a) an offer to issue or sell; or

(b) a request or invitation to ask or apply for;

an add-on insurance product that would, if offered to a consumer, be covered by a product intervention order in force under Part 7.9A of the Corporations Act 2001 that provides for a period during which the product must not be sold to the consumer.

Note: A defendant bears an evidential burden in relation to the matter in subsection (2): see subsection 13.3(3) of the Criminal Code.

12DW Exception for comprehensive motor vehicle insurance

(1) Section 12DQ does not apply in relation to the sale of an add-on insurance product by a person if the add-on insurance product provides insurance cover:

(a) to an individual who:

(i) wholly or partly owns a motor vehicle; or

(ii) has the use of a motor vehicle under a lease of at least 4 months' duration; and

(b) in respect of all of the following (whether or not the product also provides insurance cover in respect of other matters):

(i) loss of, or damage to, the motor vehicle resulting from an accident;

(ii) loss of, or damage to, property of another person resulting from an accident in which the motor vehicle is involved;

(iii) loss of, or damage to, the motor vehicle caused by fire, theft or malicious acts.

Note: A defendant bears an evidential burden in relation to the matter in subsection (1): see subsection 13.3(3) of the Criminal Code.

(2) Sections 12DR and 12DS do not apply in relation to an offer to issue or sell an add-on insurance product described in subsection (1) of this section, or a request or invitation to ask or apply for such an add-on insurance product.

Note: A defendant bears an evidential burden in relation to the matter in subsection (2): see subsection 13.3(3) of the Criminal Code.

(3) In this section:

motor vehicle means a motor-powered vehicle that:

(a) is designed to travel by road; and

(b) is designed to carry passengers, or is a motorcycle; and

(c) does not have a carrying capacity that exceeds 2 tonnes.

12DX Exemption by regulations

Regulations may exempt a class of products

(1) The regulations may exempt a class of add-on insurance products from sections 12DQ, 12DR and 12DS.

Conditions on exemptions

(2) An exemption under subsection (1) may be subject to conditions specified in the regulations.

Note: A person who contravenes a condition may commit an offence (see section 12DZA).

12DY Exemption by ASIC

(1) ASIC may, by notifiable instrument, exempt from sections 12DQ, 12DR and 12DS:

(a) an add-on insurance product sold by a specified person; or

(b) a class of add-on insurance products sold by a specified person.

Note: For review of a decision to refuse to make an exemption under subsection (1), or to vary or revoke such an exemption, see section 244.

(2) In considering whether to make an exemption under subsection (1), ASIC must have regard to the following:

(a) any evidence as to whether the add-on insurance product, or the class of add-on insurance products, has historically been good value for money;

(b) whether, without an exemption, there is a high risk of underinsurance or non-insurance;

(c) any evidence as to whether the add-on insurance product, or the class of add-on insurance products, is well understood by consumers;

(d) any differences between the add-on insurance product, or add-on insurance products in the class, and financial products of a similar kind that are not sold as add-on insurance products;

(e) any other matters that ASIC considers relevant.

Conditions on exemptions

(3) An exemption under subsection (1) may be subject to conditions specified in the exemption.

Note 1: A person who contravenes a condition may commit an offence (see section 12DZA).

Note 2: For review of a decision to impose or vary a condition on an exemption under subsection (1), see section 244.

12DZ Effect of exemption

(1) Section 12DQ does not apply in relation to the sale of an add-on insurance product by a person if an exemption under subsection 12DX(1) or 12DY(1) applies to the add-on insurance product.

Note: A defendant bears an evidential burden in relation to the matter in subsection (1): see subsection 13.3(3) of the Criminal Code.

(2) Sections 12DR and 12DS do not apply in relation to an offer to issue or sell an add-on insurance product, or a request or invitation to ask or apply for an add-on insurance product, if an exemption under subsection 12DX(1) or 12DY(1) applies to the add-on insurance product.

Note: A defendant bears an evidential burden in relation to the matter in subsection (2): see subsection 13.3(3) of the Criminal Code.

Product intervention orders

(3) Subsections (1) and (2) do not apply to an add-on insurance product if:

(a) a product intervention order is in force under Part 7.9A of the Corporations Act 2001 in relation to the product; and

(b) the product intervention order provides for a period during which the product must not be sold.

12DZA Contravention of conditions on exemption

(1) A person who:

(a) sells or offers to sell an add-on insurance product, if an exemption under section 12DX or 12DY applies to the product; or

(b) sells a product or service, if:

(i) there is an arrangement between the person and another person that relates to the provision by the other person of add-on insurance products in relation to that kind of product or service; and

(ii) an exemption under section 12DX or 12DY applies to any of those add-on insurance products; or

(c) offers an add-on insurance product for issue or sale to a consumer, or requests or invites a consumer to ask or apply for an add-on insurance product or to purchase an add-on insurance product, where an exemption under section 12DX or 12DY applies to the add-on insurance product;

must not contravene a condition of the exemption.

Note: Failure to comply with this subsection is an offence (see section 12GB).

Product intervention orders

(2) Subsection (1) does not apply to an add-on insurance product if:

(a) a product intervention order is in force under Part 7.9A of the Corporations Act 2001 in relation to the product; and

(b) the product intervention order provides for a period during which the product must not be sold.