ASIC CLASS ORDER [CO 07/409]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

The Australian Securities and Investments Commission (ASIC) makes Class Order [CO 07/409] General Insurance Disclosure: Extension of Transitional Period under s1020F(1)(c) of the Corporations Act 2001 (the Act).

Section s1020F(1)(c) provides that ASIC may declare that Pt 7.9 applies in relation to a person or a financial product, or a class of persons or financial products, as if specified provisions were omitted, modified or varied as specified in the declaration.

1. Background

The Corporations Amendment Regulations 2005 (No. 5) (effective 19 December 2005) inserted regs 7.9.15D–F into the Corporations Regulations 2001 (Corporations Regulations).  Regulations 7.9.15D–F modify the operation of Pt 7.9 disclosure provisions in regard to general insurance products.

Specifically, regs 7.9.15D and 7.9.15F modify ss1013C–D of the Act to allow some content that would be required in most Product Disclosure Statements (PDSs) to be removed for general insurance products, including:

•     disclosure of significant risks;
•     disclosure of moneys paid into a common fund;
•     details of commissions that may affect returns on the financial product;
•     taxation implications;
•     details about accessing other information about the product; and
•     information that might reasonably be expected to have a material influence on a person acquiring the product.

Regulation 7.9.15E modifies s1013D of the Act to require additional disclosure about:

•     the terms and conditions of the general insurance policy; and
•     information about rights under the Insurance Contracts Act 1984.

Schedule 5, item 2 of the Corporations Amendment Regulations 2005 (No 5) provides for a transitional period during which general insurers may either comply with ss1013C–D as they stood before the modifications described above, or as modified.  This transitional period commenced on 19 December 2005 and expires on 20 June 2007.

On 12 February 2007, the Government  announced proposed amendments to the Insurance Contracts Act 1984 that will affect the disclosure that must be made by insurers within insurance contracts.

On 26 March 2007, the Government announced proposed new Corporations Amendment Regulations.  These will modify financial services disclosure provisions, including the dollar disclosure provisions for general insurers.

It is anticipated that both sets of legislative changes will require insurers to make changes to their disclosure documentation.

2. Purpose of the class order

According to the Regulatory Impact Statement accompanying the Corporations Amendment Regulations 2005 (No. 5), the transition period in Schedule 5, item 2 of the Corporations Amendment Regulations 2005 (No. 5) was introduced to allow the general insurance industry some flexibility and reduced costs in adjusting to the changes to their disclosure requirements.

As Government has announced new changes that will affect general insurance disclosure documentation, [CO 07/409] will extend the transitional period to coincide with the introduction of these changes.  This is intended to reduce costs for industry, by allowing insurers to make all of the required changes to their disclosure documentation simultaneously.

3. Operation of the class order

[CO 07/409] modifies the operation of regs 7.9.15D–F so that they apply to general insurance products with an extended transition period, that is, a transition period expiring on 31 August 2007.

5. Consultation

ASIC consulted with Government before [CO 07/409] was made and we understand that Government has consulted with industry.  ASIC did not undertake any specific consultation with other stakeholders before [CO 07/409] was made, as it is of a minor and machinery nature, and does not substantially alter existing arrangements.