A Close Call for Strata Managers – Draft Legislation Doesn’t Require an AFSL

Since the Hayne Royal Commission there have been worries that insurance claims handling of any sort will require an Australian Financial Services Licence (AFSL), however draft legislation indicates only selected groups will now require a licence.

See the Exposure Draft here.

The draft legislation indicates the following parties will require an AFSL which covers handling and settling an insurance claim:

·         Insurers

·         Loss Assessors and Loss Adjusters

·         Insurance fulfilment providers

·         Claims Managers acting for insurers

·         Insurance Brokers acting for insurers

·         Financial Advisors acting for insurers

The draft indicates that parties requiring this type of AFSL are all insurer side.

Notably, parties that do not appear to need this type of AFSL are:

·         Strata Managers

·         Claims Preparers and Public Loss Adjusters

·         Insurance Brokers acting for the insured

·         Lawyers acting for the insured

The draft indicates that parties not requiring this type of AFSL are all insured side.

Statement of Claim Settlement Options

The Draft also adds a requirement for insurers to provide written options to the insured or third party beneficiary when cash settling a claim.

Unfortunately for insurers, failures here can lead to a contravention of a civil penalty provision which attracts fines of up to $5.5M, or for the larger insurers even more.

In practice, there is complexity in determining which items are owned by Owners Corporations and which are owned by unit owners. Providing this statement to the wrong party may make it defective and thus attract fines. As such we’d likely see insurers attempt to control the repair process as much as possible.

The legislation is of course still at draft stage and responses to the draft can be submitted up until 10 January 2020.