EXPLANATORY STATEMENT
Select Legislative Instrument 2010 No. 234
Issued by the authority of the Treasurer
Insurance Act 1973
Insurance Amendment Regulations 2010 (No. 1)
Section 132 of the Insurance Act 1973 (the Act) provides, in part, that the Governor‑General may make regulations, not inconsistent with the Act, prescribing all matters that are required or permitted by the Act to be prescribed or are necessary or convenient to be prescribed for carrying out or giving effect to the Act.
The Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Act 2010 (FSLA Act) amends section 62ZZM of the Act to provide that when a person’s entitlement under the Financial Claims Scheme (FCS) connected to a general insurer and a protected policy is met, the person is taken to have been paid the amount by the general insurer under the terms and conditions of the policy for all purposes except those prescribed by the regulations.
Currently, section 62ZZM is more limited in relation to when a person is taken to have been paid by the general insurer under the terms and conditions of their policy. The section presently provides that such payments will only be taken to have been paid by the general insurer under the terms and conditions of the policy for the purpose of subrogation or a purpose prescribed by the regulations.
Regulation 7EA of the Insurance Regulations 2002 (the Principal Regulations) currently prescribes two additional purposes when meeting an entitlement under the FCS is to be taken to be payment by the insurer under the policy. These two purposes are the recovery of reinsurance by the general insurer and the claiming of contribution by the general insurer in respect of double insurance.
The Regulations amend the Principal Regulations to repeal regulation 7EA of the Principal Regulations as it is redundant as a result of the above mentioned amendments made by the FSLA Act.
The Insurance Council of Australia was consulted in the preparation of the Regulations.
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
The Regulations commence on the commencement of items 1 to 83 of Schedule 2 of the Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Act 2010 on 27 July 2010.
Overview
The Insurance Amendment Regulations 2010 (No. 1) were enacted to amend the Insurance Regulations 2002, ensuring they align with the Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Act 2010. This legislative instrument was introduced to address the need for more comprehensive regulation in the insurance sector, particularly concerning the Financial Claims Scheme (FCS). The Insurance Act 1973 provides the overarching legal framework, and these regulations were developed to refine and update the regulatory details to reflect changes in policy objectives and the operational landscape of insurance practices in Australia. The policy objective underpinning these amendments is to enhance the clarity and effectiveness of the FCS, ensuring that insured individuals are better protected and that insurers' obligations are clearly defined. These regulations were issued by the authority of the Treasurer and commenced on 27 July 2010, following the commencement of the amending Act.
Scope and Application
The Insurance Amendment Regulations 2010 (No. 1) apply to persons and entities involved in insurance transactions and the operation of the Financial Claims Scheme (FCS) in Australia. Specifically, the Regulations amend the Insurance Regulations 2002 to address the treatment of entitlements under the FCS connected to general insurers and protected policies. This adjustment arises from the Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Act 2010, which modifies section 62ZZM of the Insurance Act 1973 to expand the circumstances under which a person is deemed to have been paid by the insurer under the policy terms. The Regulations operate nationally, as the Insurance Act 1973 has Commonwealth reach, and the Regulations are subordinate instruments that implement the legislative amendments. The changes made by the Regulations are effective from 27 July 2010, the date items 1 to 83 of Schedule 2 of the Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Act 2010 commenced.
Key Provisions
The Insurance Amendment Regulations 2010 (No. 1) primarily deal with the repeal of regulation 7EA in the Insurance Regulations 2002. This repeal is necessary due to amendments introduced by the Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Act 2010 (FSLA Act) to section 62ZZM of the Insurance Act 1973 (the Act). Under section 62ZZM, when a person’s entitlement under the Financial Claims Scheme (FCS) connected to a general insurer and a protected policy is met, that person is taken to have been paid by the general insurer under the terms and conditions of the policy for all purposes except those prescribed by the regulations. This amendment broadens the circumstances under which a payment under the FCS is considered equivalent to a payment under the policy terms and conditions.
The Regulations impose specific obligations on general insurers and other entities governed by the Act. General insurers must now ensure that their practices align with the new provisions of section 62ZZM and the subsequent regulations. This includes recognising that payments made through the FCS should be treated as policy payments, except for purposes explicitly prescribed by the regulations. These obligations require general insurers to update their internal processes and documentation to reflect the changes, ensuring compliance with the legislative requirements.
The Regulations do not introduce new offences or penalties; however, non-compliance with the amended section 62ZZM and the subsequent regulations may lead to civil or criminal consequences depending on the nature and extent of the breach. Under the Insurance Act 1973, penalties for breaches can include substantial fines, both for individuals and corporations, as well as potential criminal charges for serious or repeated violations. The precise penalties would be determined by the courts based on the specific circumstances of the breach and the impact of the non-compliance. The Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Act 2010 also empowers the Australian Prudential Regulation Authority (APRA) to take regulatory actions against insurers who fail to comply with the provisions of the Act.