Explanatory Statement

ASIC Corporations (Cash Settlement Fact Sheet) Instrument 2022/59

This is the Explanatory Statement for ASIC Corporations (Cash Settlement Fact Sheet) Instrument 2022/59 (the Instrument).

The Explanatory Statement is approved by the Australian Securities and Investments Commission (ASIC).

Summary

1.             On 10 December 2020, the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (FSRC Reform Act) was passed. The FSRC Reform Act introduced a new disclosure obligation into Division 3A of Part 7.7 of the Corporations Act 2001 (Corporations Act) requiring Australian Financial Services (AFS) licensees (or their authorised representatives) that provide claims handling and settling services to give a cash settlement fact sheet (CSFS) in certain circumstances.

2.             A CSFS must contain certain prescribed information, and must be given by an AFS licensee or their representative (the providing entity) to insureds who are offered a cash payment to settle part or all of a general insurance claim (the cash settlement offer) when the insured has a choice between a cash settlement and other settlement options. The CSFS must be given in writing to the insured when the cash settlement offer is made.

3.             The CSFS obligation aims to ensure that insureds have sufficient information about the cash settlement offer to make an informed decision about whether to accept the offer from an insurer.

4.             The Instrument exempts providing entities from the requirement to give the CSFS to the insured when the cash settlement offer is made, subject to conditions. It allows providing entities to give the CSFS after a verbal cash settlement offer has occurred. The exemption applies in circumstances where the insured has expressly instructed the insurer or its representative that they are in immediate need of financial assistance, the verbal cash settlement offer has been made within 14 days of the insurable event the subject of the claim, and the cash payment (together with any other cash settlement offers occurring under the same claim) does not exceed $5,000. Should these circumstances arise and providing entities wish to give the CSFS after the verbal cash settlement offer in reliance on the exemption, providing entities must comply with a number of conditions to ensure insureds are still provided the prescribed information about the cash settlement offer and are able to take steps to have the cash payment reversed if they change their mind after accepting it.

Purpose of the instrument

5.             The purpose of the Instrument is to prevent consumer detriment in the claims handling process in circumstances where an insured is in immediate need of a small-moderate value cash payment.

6.             The obligation to provide a written CSFS at the time of the cash settlement offer could sometimes create a delay in the claims handling process, leading to a risk of poor consumer outcomes when insureds need a quick, small-moderate cash payout in urgent or emergency situations (for example, after a fire, flood, or break in and the insured needs funds to purchase essentials such as clothing or food).

7.             In particular, insureds may wish to accept a small cash settlement offer over the phone, or otherwise verbally, and have the cash payment made immediately. Having to wait for a written CSFS to be given after an initial phone call or conversation with their insurer before accepting the cash settlement offer may create extra stress and delay, even if only short, in an already stressful situation for an insured.

8.             Impeding such timely provision of urgently needed cash payments to insureds would likely be an adverse, unintended and unforeseen outcome of the CSFS obligation. 

9.             While the Instrument has the effect of exempting providing entities from the requirement in subsection 948C(1) of the Corporations Act to the extent it requires the providing entity to give the CSFS when the cash settlement offer is made in accordance with section 948D, it does not have the effect of removing the obligation to give a CSFS altogether. The conditions set out in the Instrument ensure that the policy intent of the CSFS obligation is still met by confining the exemption to limited circumstances and requiring providing entities to meet certain conditions, such as verbally giving the insured information prescribed by section 948F(1).

10.         The conditions also reflect that the exemption should only be relied upon in genuine situations where the insured is in immediate need of financial assistance. The Instrument requires that the verbal cash settlement offer is made within 14 days of the insurable event that gave rise to the claim, and that the resulting cash payment is made within two days of the insured accepting the offer.    

11.         Importantly, the Instrument provides a right of reversal for the insured (in addition to other existing rights of review available to the insured), should they wish to have their cash settlement offer reversed within 12 months from the date of the cash payment. No interest or fees on the amount of the cash payment are payable by the insured if they engage this right of reversal. In this way, any adverse consumer outcomes resulting from the exemption can be rectified if necessary.

Consultation

12.         Before making this Instrument, ASIC undertook targeted consultation with a range of stakeholders from industry, the Government and consumer representative bodies on the proposed relief, as well as the need for relief.

13.         These stakeholders were also consulted on the scope of the proposed relief, including the limited circumstances in which the relief would apply to and any conditions the relief should be subject to.

14.         Following consultation, ASIC modified some aspects of the proposed conditions applicable to the relief having regard to the balance of all feedback received.

Operation of the instrument

15.         Section 2 of the Instrument specifies that the Instrument commences on the day after the Instrument is registered on the Federal Register of Legislation. Section 6 of the Instrument provides that the instrument will be repealed 3 years after the date it is made. Therefore, the duration of the Instrument will be for a period of 3 years.

16.         Subsection 5(1) of the Instrument exempts providing entities from compliance with subsection 948C(1) of the Corporations Act to the extent it requires the providing entity to give a CSFS at the time specified in section 948D of the Corporations Act, provided certain circumstances are satisfied, to allow for them to give the CSFS after the cash settlement offer is made rather than when it is made.

17.         Subsection 5(2) limits the circumstances in which the exemption from giving the CSFS when the verbal cash settlement offer is made to those in which:

a.       the insured has expressly instructed the providing entity that they are in immediate need of a cash payment because of the insurable event the subject of the claim;

b.      the verbal cash settlement offer has been made to the insured no later than 14 days after the insurable event the subject of the claim; and

c.       the total amount of the cash settlement offer, and any other cash settlement offers made to the insured by the providing entity in relation to the insurable event in accordance with paragraphs a. and b., does not exceed $5,000.

18.         Subsection 5(3) requires any providing entities intending to rely on the exemption to comply with the following conditions:

a.       they must verbally give the insured the information required under section 948F(1) to appear in a CSFS at the time the verbal cash settlement offer is made; and

b.      they must take all reasonable steps to give the insured the CSFS within:

                                                  i.      48 hours of the verbal cash settlement offer being made if the CSFS is given electronically; or

                                                ii.      five business days of the verbal cash settlement offer being made if the insured has notified the providing entity they cannot or do not want to be given the CSFS electronically; and  

c.       they must take all reasonable steps to make the cash payment within two days of the insured accepting the verbal cash settlement offer; and

d.      they must provide the insured with the right to have the accepted cash settlement offer reversed within 12 months from the date the cash payment was made, without any interest or fees payable by the insured for reversing the cash payment.

19.         The condition enabling a right to have the cash payment reversed does not diminish existing rights the insured may have under or in relation to the insurance product, and so a note is included in the Instrument to confirm that this right of reversal does not limit the rights of review available to the insured under the insurance product.

Legislative instrument and primary legislation 

20.         The subject matter and policy implemented by this instrument is more appropriate for a legislative instrument rather than primary legislation because the Instrument provides administrative relief for a relatively small subset of insurance claims in circumstances where strict compliance with the primary legislation produces an unintended result, including the potential for consumer detriment.

21.         The 3-year duration of the Instrument is appropriate because the Instrument acts as a temporary holding mechanism while consideration is undertaken as to whether longer-term action is required. This includes considering the merits of incorporating the relief into the primary legislation.

22.         ASIC understands that the Government will consider making future amendments to the Corporations Act before the instrument ceases in 2025. Prior to the repeal of the Instrument, ASIC and Treasury will undertake a review of the Instrument and consult on options for amending, remaking or repealing the Instrument as appropriate. This review will also consider whether it is appropriate to incorporate the Instrument into the primary legislation.

Legislative authority

23.         The Instrument is made under subsection 951B(1) of the Corporations Act.

24.         Subsection 951B(1) provides that ASIC may exempt a class of persons from specified provisions of Part 7.7 of the Corporations Act, and subsection 951B(3) provides an exemption may be subject to specified conditions.  

25.         The Instrument is a disallowable legislative instrument.

Statement of Compatibility with Human Rights 

26.         The Explanatory Statement for a disallowable legislative instrument must contain a Statement of Compatibility with Human Rights under subsection 9(1) of the Human Rights (Parliamentary Scrutiny) Act 2011. A Statement of Compatibility with Human Rights is in the Attachment.

Attachment

Statement of Compatibility with Human Rights

This Statement of Compatibility with Human Rights is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.  

ASIC Corporations (Cash Settlement Fact Sheet) Instrument 2022/59

Overview

1.       ASIC Corporations (Cash Settlement Fact Sheet) Instrument 2022/59 allows general insurers that provide claims handling and settling services to give a Cash Settlement Fact Sheet to insureds after a verbal cash settlement offer has occurred, in circumstances where the insured is in immediate need of financial assistance and the cash payment does not exceed $5,000. Certain conditions attach to this relief to ensure that insureds are still given sufficient information about whether to accept a cash settlement offer from an insurer.

Assessment of human rights implications

2.       This instrument does not engage any of the applicable rights or freedoms. 

Conclusion

3.       This instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.