EXPLANATORY STATEMENT
STATUTORY RULES 1986 NO 351
INSURANCE (AGENTS AND BROKERS) REGULATIONS
ISSUED BY THE AUTHORITY OF THE MINISTER ASSISTING THE TREASURER
The Insurance (Agents and Brokers) Act 1984 (the Act) is designed to regulate the activities of insurance brokers and, to an extent, insurance agents. The Act, which is largely based on recommendations made by the Law Reform Commission in its Report on Insurance Agents and Brokers, is aimed at regulating this area of the insurance industry with a view to strengthening the financial stability of the industry overall; protecting the insuring public against the negligence or misconduct of an agent or broker; minimising practices harmful to the insuring public and maintaining standards of conduct of, and quality of advice offered by, agents and brokers.
Section 48 of the Insurance (Agents and Brokers) Act 1984 (the Act) provides that the Governor-General may make regulations, not inconsistent with the Act, prescribing matters necessary or convenient to be prescribed for carrying out or giving effect to the Act. In particular, regulations may be made prescribing penalties, not exceeding a fine of $500, in respect of offences against the regulations, and fees payable in respect of any matter under the Act or the regulations.
Section 26 of the Act provides that a registered insurance broker shall pay into an ‘insurance broking account’ maintained with a bank all moneys received from an insured or intending insured for an insurer, or from an insurer for an insured or intending insured. While the purposes for which moneys may be withdrawn from that account are limited, sub-section 26(4) provides for the investment of moneys received from an insured (or intending insured) in connection with a contract of insurance (not being a contract of life insurance) arranged or effected (or to be arranged or effected) by the broker.
The original sub-section 26(4) referred to ‘prescribed securities’ and, as a consequence, the original Regulation 10 was limited to securities issued or guaranteed by the Commonwealth, a State or the Northern Territory, securities issued by an authority constituted under a Commonwealth Act, a State Act or a law of a Territory and secured loans to an authorised dealer in the short-term money market.
Following the amendment of that sub-section of the Act in the Statute Law (Miscellaneous Provisions) Act (No 1) 1986 (No 76 of 1986 which was assented to on 24 June 1986), ‘investment in such manner as is prescribed’ has been substituted for ‘investment in prescribed securities’, and Regulation 10 has been replaced with one which prescribes a wider range of investments.
The expanded range of investments provided for in the regulation takes account of the investment guidelines laid down for members of the National Insurance Brokers Association of Australia and embraces those forms of investment set out in the original regulation plus deposits with, and negotiable instruments guaranteed by, approved banks, deposits with, or shares in, building societies with trustee status and cash management trusts in existence on 1 July 1986 which broadly restrict their investments to those of the type prescribed above as well as deposits with, and negotiable instruments guaranteed by, wholly owned subsidiaries of approved banks. Provision is also made for investment in any cash management trusts which may be established in the future by wholly-owned subsidiaries of approved banks, registered life insurers and members of stock exchanges.
The range of investments is consistent with present practice in the broking industry. Insureds or intending insureds will not be adversely affected by the widened range for the reason that an insurer is responsible for any moneys payable to it which have been received from an insured (or intending insured) by an insurance intermediary.
Details of the regulation are attached.
The Treasury
CANBERRA ACT 2600
ATTACHMENT
DETAILS OF AMENDED REGULATION 10
Sub-regulation (1) defines an ‘approved bank’ as a bank within the meaning of the Banking Act 1959 and a State Bank. It also defines an ‘authorised dealer in the short term money market’ in terms of the Banking (Savings Banks) Regulations and a stock exchange and a member of same in terms of the Securities Industry Act 1980.
Sub-regulation (2) sets out the investments prescribed for the investment of funds received by a registered insurance broker from an insured or intending insured for general (as distinct from life) insurance contracts. These comprise:
(1) those prescribed in the original regulation, viz
(a) securities issued or guaranteed by the Commonwealth, a State or the Northern Territory;
(b) securities issued by an authority constituted by or under a Commonwealth Act, a State Act or a Territory law; and
(f) deposits with an authorised dealer in the short term money market; and
(2) the following additional forms:
(c) deposits with an approved bank;
(d) deposits, with or shares in, a building society with trustee status in a State or Territory;
(e) negotiable instruments (other than cheques) issued, accepted, drawn or endorsed by an approved bank;
(g) cash management trusts in existence on 1 July 1986. These generally invest their trust funds in investments of the type referred to above as well as deposits with, and negotiable instruments guaranteed by, wholly-owned subsidiaries of approved banks; and
(h) cash management trusts which may be established in the future by wholly owned subsidiaries of approved banks, registered life insurers and members of stock exchanges.