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.
Overview
The ASIC Class Order [CO 07/409], enacted in 2007, extends the transitional period for general insurance disclosure under the Corporations Act 2001. This legislative instrument was introduced by the Australian Securities and Investments Commission (ASIC) to address the need for a more extended adjustment period for the general insurance industry, in light of proposed amendments to both the Corporations Regulations and the Insurance Contracts Act 1984. The primary objective of this class order is to streamline the transition process for insurers by allowing them to implement all necessary changes to their disclosure documentation concurrently, thereby reducing costs and administrative burdens. This approach aligns with the broader goal of ensuring that insurers can comply with evolving regulatory requirements in a manner that is both efficient and effective.
Scope and Application
The ASIC Class Order [CO 07/409] pertains to the application of Part 7.9 of the Corporations Act 2001 to general insurance products, specifically extending the transitional period for compliance with modified disclosure requirements. This class order applies to all entities involved in the issuance of general insurance products, such as insurance companies and intermediaries, within the Commonwealth of Australia. The modifications introduced by the Corporations Amendment Regulations 2005 (No. 5) were initially set to conclude on 20 June 2007, but the class order extends this period to 31 August 2007. The purpose of this extension is to alleviate the burden on the industry by allowing general insurers to concurrently implement changes necessitated by both the existing and proposed legislative amendments. The transitional provisions are designed to provide flexibility and reduce costs associated with updating disclosure documentation for general insurance products.
Key Provisions
The ASIC Class Order [CO 07/409] modifies the Corporations Regulations to extend the transitional period for general insurers to comply with new disclosure requirements. Under section 1020F(1)(c) of the Corporations Act 2001, ASIC has the authority to modify the application of certain provisions for specified persons or products. This class order specifically targets regulations 7.9.15D to 7.9.15F, which adjust the disclosure requirements for general insurance products. The original transitional period, set to expire on 20 June 2007, is extended to 31 August 2007 to align with forthcoming legislative changes announced by the Government. This extension aims to provide insurers with sufficient time to adjust their documentation to meet the new requirements.
The obligations imposed by this class order on general insurers include complying with the modified disclosure requirements for general insurance products. Insurers must ensure that their Product Disclosure Statements (PDSs) reflect the changes specified in regulations 7.9.15D and 7.9.15F, which allow for the omission of certain disclosures such as significant risks and details about commissions. At the same time, regulation 7.9.15E mandates additional disclosures, including terms and conditions of the insurance policy and information about rights under the Insurance Contracts Act 1984. Insurers must also align their documentation with the extended transition period, ensuring all necessary changes are made by 31 August 2007.
Failure to comply with the provisions of this class order could lead to regulatory consequences. Although the explanatory statement does not specify particular offences, non-compliance with the Corporations Act 2001 or the Corporations Regulations could result in enforcement actions by ASIC. Potential penalties include fines and other sanctions under the Act, which can be substantial depending on the severity and frequency of the breaches. Civil liabilities may also arise if insurers fail to meet their disclosure obligations, leading to claims from affected consumers. Criminal penalties could apply in cases of intentional or reckless non-compliance, resulting in fines and/or imprisonment as prescribed by the Act.