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I was chatting to some Lloyd’s underwriters last night & they mentioned the complexity of the Australian regulatory landscape for general insurance. I agree that the landscape is complex however, I also made the point, of how a systematic approach to compliance enables that complexity to be adequately managed. 𝘼 𝙨𝙮𝙨𝙩𝙚𝙢𝙖𝙩𝙞𝙘 𝙖𝙥𝙥𝙧𝙤𝙖𝙘𝙝 𝙩𝙤 𝘾𝙤𝙢𝙥𝙡𝙞𝙖𝙣𝙘𝙚 Identify the sources of your obligations. Obligations will arise from (i) what you do (& the licences & authorisations you need/hold); different obligations apply to insurers, Underwriting Agencies, brokers & TPAs & (ii) how you provide your services e.g., different distribution channels & use of claim service suppliers Record your material obligations. Larger firms may do this through a stand-alone register while smaller firms should incorporate it within their risk & compliance manual Adopt a risk appetite statement (RAS) position for regulatory/compliance risk. Assign key control(s) to each obligation until the obligation is within your RAS. Periodically test the control to ensure that it is designed effectively & operating effectively. Take action to close out any identified gaps Train your people (& ARs) on how compliance protects, the importance of a systemic approach to compliance & their role in control testing & self-reporting by promptly identifying & reporting incidents, breaches & complaints Use data generated by the systematic approach to compliance (incidents, breaches, complaints, self-reports, file reviews, QA etc) to validate the control test results & to report breaches to regulators or Code committees Use external information such as regulatory/Code reviews, ASIC letters, Court cases, regulator speeches & media releases & the like to question ‘could this happen to us?’ or ‘How are we managing this?’ Report the control test results & data & external information to your risk & compliance committee. The data should be analysed, connections & insights provided & decisions made. Incorporate regulatory change mechanisms into your systematic approach. Use the data that the systematic approach generates as a continuous improvement mechanism so that compliance continues to protect & adds value to your business. 𝙂𝙚𝙣𝙚𝙧𝙖𝙡 𝙞𝙣𝙨𝙪𝙧𝙖𝙣𝙘𝙚 𝙞𝙨 𝙘𝙤𝙢𝙥𝙡𝙚𝙭 A systematic approach to compliance results in an ecosystem that continually evolves to respond to & manage the risks associated with business growth & regulatory change & increasing complexity. The regulatory landscape for general insurance is complex. However, a systematic approach to compliance enables this complexity to be understood & managed in a way that protects your business, people, customers & stakeholders.

The recent Federal Court decision in Australian Securities and Investments Commission v Lanterne Fund Services Pty Limited [2024] FCA 353 provides the elements that an effective monitoring & supervision program should contain. I have expanded these elements based on my experience in working with clients in the insurance industry. 𝙄𝙢𝙥𝙡𝙚𝙢𝙚𝙣𝙩𝙞𝙣𝙜 𝙖𝙣 𝙚𝙛𝙛𝙚𝙘𝙩𝙞𝙫𝙚 𝙈𝙤𝙣𝙞𝙩𝙤𝙧𝙞𝙣𝙜 & 𝙎𝙪𝙥𝙚𝙧𝙫𝙞𝙨𝙞𝙤𝙣 𝙥𝙧𝙤𝙜𝙧𝙖𝙢 A robust due diligence process of all representatives pre-appointment Agreements with new CARs (& employees) containing requirements & obligations Supervisory arrangements – comprising monthly attestations, self-audits & risk-based audits by the licensee, formal & informal meetings with comprehensive note-taking, robust reporting of incidents, breaches & complaints Risk management & compliance systems – must be formal, systematic & documented & cover the risks faced by the firm. Risk & Compliance manuals must be tailored & current. The licensee should provide clear guidance & instructions to its CARs & ARs about their obligations regarding compliance with the financial services laws Training – must be provided & cover financial services laws including AR obligations & the relevant industry Codes. Conducted during induction & annually thereafter Human resources – the licensee must have enough people to conduct the monitoring & supervision activities. This includes regular performance reviews of the representatives & consequence management Technological resources – an adequate IT infrastructure to keep abreast of issues such as IT security or cyber security The Licensee must have enough responsible managers who are qualified, skilled & experienced in general insurance with sufficient time to conduct their role effectively Governance should include a risk & compliance committee meeting quarterly & receiving data, information & insights to oversight the licensee & their representatives The Monitoring & Supervision program must include self-checking mechanisms so that your compliance arrangements continue to evolve with regulatory changes & business growth.   I can work with you to: 1. Conduct a compliance review of your current compliance arrangements identifying gaps and adopting a risk-based approach. My reviews adopt a top-down approach not a file-by-file audit approach; 2. Design a fit-for-purpose, tailored AR program for your business; 3. Provide training for your representatives.

In the wake of the recent public hearings and the release of transcripts, there’s been a surge of discussions, particularly among clients in Queensland. These conversations are honing in on several key areas highlighted during the hearings. One significant topic of interest is ‘claims handling including delays’. People are keen to delve into how insurers are managing claims, especially in terms of timeliness and efficiency. Another focal point is ‘the role of experts such as assessors & builders’. This aspect delves into the expertise involved in assessing claims and the impact it has on the overall process. Lastly, there’s a spotlight on ‘customers experiencing vulnerability’. The discussions are examining how insurers are addressing the needs of vulnerable customers and ensuring they receive fair treatment throughout the claims process. These discussions are driven by submissions and the line of questioning from the Committees during the hearings. As we continue to analyse and reflect on these topics, we aim to gain deeper insights into the dynamics of insurance practices and how they affect clients, particularly in Queensland.

A term requiring insureds to notify A&G of any changes to their home & contents was not unfair under the ASIC Act 1. The proceedings concern home/contents insurance which contained certain notification obligations on the part of the insureds. 2. The PDS contained a number of references that explained certain matters relevant to the notification obligations (see paras 4-11 of the judgment). 3. Relevantly, the PDS contained 11 examples of changes A&G wanted the insured to tell them about 4. The offending clause, which preceded the 11 examples stated, ‘you need to tell us if 𝗮𝗻𝘆𝘁𝗵𝗶𝗻𝗴 changes about your home & contents.’ This Notification Clause was the focus of ASIC’s claim 5. Evidence concerning the processes for applying for cover (p12-22) & claim assessment (p23-30) was led by A&G 6. The Crt considered relevant provisions of Unfair Contract Terms (ASIC Act) & Utmost Good Faith (ICA) 7. The Crt rejected the literal meaning of 𝗮𝗻𝘆𝘁𝗵𝗶𝗻𝗴. 8. The Crt accepted that the requirement in the Notification Clause was restricted to notify A&G “if anything changes” concerned the information already provided by the insured to A&G. (refer 2 & 3 above) 9. The Crt held that the duty of UGF operates to limit what A&G can do under the Notification Clause in response to an insured’s failure to notify it of the relevant changes. 10. The Crt determined, upon the proper construction of the Notification Clause, the contracts of insurance contained a term that: (a) the insured must notify A&G if, during the term of the policy, there was any change to the information about the insured’s home or contents that the insured had disclosed to A&G prior to entry into the contract; & (b) if the insured failed to notify A&G of such changes, it had the right to refuse to pay a claim, reduce the amount it paid, cancel the contract or not offer to renew the contract if & to the extent that it would be consistent with commercial standards of decency & fairness for A&G to do so 11. The Crt applied the 3 limb test for ‘unfair clauses’ & held a. s54 (ICA) operates to ensure that A&G’s powers to refuse or reduce claims would not cause a 𝙨𝙞𝙜𝙣𝙞𝙛𝙞𝙘𝙖𝙣𝙩 𝙞𝙢𝙗𝙖𝙡𝙖𝙣𝙘𝙚 in the rights & obligations of the parties arising under the contract b. 𝙋𝙧𝙤𝙩𝙚𝙘𝙩𝙞𝙣𝙜 𝙡𝙚𝙜𝙞𝙩𝙞𝙢𝙖𝙩𝙚 𝙞𝙣𝙩𝙚𝙧𝙚𝙨𝙩𝙨 of A&G – s54 & UGF constrains A&G to the extent that only a failure to notify a change in information that has prejudiced its interests is relevant c. The Crt accepted ASIC’s submission that the lack of clarity in the Notification Clause 𝙘𝙖𝙪𝙨𝙚𝙙 𝙙𝙚𝙩𝙧𝙞𝙢𝙚𝙣𝙩 to the insured 𝘾𝙤𝙣𝙘𝙡𝙪𝙨𝙞𝙤𝙣 The Crt found that as only 1 of the 3 criteria of an unfair term was met, ASIC failed to establish that the Notification Clause is unfair

As the industry continues to be under scrutiny, it’s timely to revisit the overarching obligations in the GI Code & Insurance Brokers Code of Practice. 𝙂𝙄 𝘾𝙤𝙙𝙚 𝙤𝙛 𝙋𝙧𝙖𝙘𝙩𝙞𝙘𝙚 Part 3 of the GI Code requires insurers & their distributors & claim service suppliers to be 𝘩𝘰𝘯𝘦𝘴𝘵, 𝘦𝘧𝘧𝘪𝘤𝘪𝘦𝘯𝘵, 𝘧𝘢𝘪𝘳, 𝘵𝘳𝘢𝘯𝘴𝘱𝘢𝘳𝘦𝘯𝘵 & 𝘵𝘪𝘮𝘦𝘭𝘺 𝘪𝘯 𝘥𝘦𝘢𝘭𝘪𝘯𝘨𝘴 𝘸𝘪𝘵𝘩 𝘤𝘶𝘴𝘵𝘰𝘮𝘦𝘳𝘴. Let’s unpack this: – the obligation extends to underwriting agencies & external insurance claim managers; – the obligation applies to both retail & wholesale insurance. – the obligation applies to all dealings including buying insurance, making a claim, dealing with customers experiencing vulnerability & complaints. – You may ask, how does Part 3 apply to claims for wholesale insurance when, for example ‘Part 8 Making a Claim’ (& Parts 5,6,7,9 & 11), does not apply to wholesale insurance? The individual requirements of Part 8 would not apply to wholesale insurance claims however the insurer & their claim service suppliers must continue to be ‘honest, fair etc..’ – it would be a reasonable interpretation of Part 3 to suggest that each component is a separate obligation. Therefore a failure to act timely (such as in claim delays) would be a breach of the Code. 𝙄𝙣𝙨𝙪𝙧𝙖𝙣𝙘𝙚 𝘽𝙧𝙤𝙠𝙚𝙧𝙨 𝘾𝙤𝙙𝙚 𝙤𝙛 𝙋𝙧𝙖𝙘𝙩𝙞𝙘𝙚 The Brokers Code, requires NIBA members to have 𝙥𝙧𝙤𝙛𝙚𝙨𝙨𝙞𝙤𝙣𝙖𝙡 𝙘𝙤𝙢𝙢𝙞𝙩𝙢𝙚𝙣𝙩, 𝙖𝙘𝙩 𝙚𝙩𝙝𝙞𝙘𝙖𝙡𝙡𝙮 & 𝙗𝙚 𝙩𝙧𝙖𝙣𝙨𝙥𝙖𝙧𝙚𝙣𝙩 & 𝙖𝙘𝙘𝙤𝙪𝙣𝙩𝙖𝙗𝙡𝙚. Due to Part 8.0, these obligations extend to the brokers employees, agents & authorised representatives. The Ethical behaviour commitment requires brokers, their staff & [authorised] representatives to act honestly & with integrity in all dealings with clients. 𝘼𝙁𝙎𝙇 𝙜𝙚𝙣𝙚𝙧𝙖𝙡 𝙤𝙗𝙡𝙞𝙜𝙖𝙩𝙞𝙤𝙣 𝙩𝙤 𝙥𝙧𝙤𝙫𝙞𝙙𝙚 𝙛𝙞𝙣𝙖𝙣𝙘𝙞𝙖𝙡 𝙨𝙚𝙧𝙫𝙞𝙘𝙚𝙨 𝙚𝙛𝙛𝙞𝙘𝙞𝙚𝙣𝙩𝙡𝙮, 𝙝𝙤𝙣𝙚𝙨𝙩𝙡𝙮 & 𝙛𝙖𝙞𝙧𝙡𝙮 The overarching obligations of the Codes complement the AFS Licence obligation to provide financial services efficiently, honestly & fairly, but with one important distinction. The AFSL obligation only applies to financial services (which of itself is still far-reaching) while the Code obligation apply to all dealings, including administrative or clerical processes. 𝙃𝙤𝙬 𝙩𝙤 𝙞𝙢𝙥𝙡𝙚𝙢𝙚𝙣𝙩 The Code overarching obligations should be viewed as a lens after specific controls are applied. For example, the obligation to update the customer every 20 business days about the progress of their claim may receive a tick, however the question then needs to be asked, where we ‘𝘩𝘰𝘯𝘦𝘴𝘵, 𝘦𝘧𝘧𝘪𝘤𝘪𝘦𝘯𝘵, 𝘧𝘢𝘪𝘳, 𝘵𝘳𝘢𝘯𝘴𝘱𝘢𝘳𝘦𝘯𝘵 & 𝘵𝘪𝘮𝘦𝘭𝘺’? It is possible to comply with individual Code paragraphs but still be in breach of the overarching Code obligations.

Compliance is only effective when you have all people engaged. This includes staff, authorised representatives, claim service suppliers & business partners. Thinking about compliance in terms of rules & regs is generally not exciting & certainly not engaging. This is one of the things I learnt very early in my compliance career. Not many people really care about the intricacies of section 912A(1) or Part 3 of the GI code or part 8 of the Brokers Code – personally, I love this stuff. Here’s a simple test. If you can’t answer the question ‘why should I care [about compliance]’? or you think the answer is ‘because we must’, then you need to change how you position & see compliance. The true purpose of compliance is to protect. The image below shows who we should protect & from what. Let me explain how compliance protects. Your compliance arrangements are the combination of your people, IT systems, manuals, policies, guidelines & processes. Think about this another way, your compliance arrangements are the controls that you have in place to manage your financial services & industry code obligations. These compliance arrangements provide a safe environment for your people to work within. By staying within these boundaries your compliance arrangements operate to protect your customers, business, partners & people from harm. As we know, mistakes happen; systems, people & processes fail. This is when your people become your early warning system. By identifying ‘something has happened that should not have happened’ at an early stage (aka an incident) your people can quickly identify when the perimeter of your compliance arrangements have been breached. This serves to minimise any harm & enables the control(s) to be quickly rectified. Thus securing the business, its customers & people. The importance of the concept of ‘compliance protects’ has never been more evident as the insurance industry moves into the era of accountability. If something happens, under your watch, in your area of accountability there will be personal consequences – both financial & reputational. FAR & CPS 230 are examples of where accountability is heading & casting a wide net. This is why compliance protects. Robust compliance arrangements provide a mechanism & infrastructure to support & protect your business, your customers & you from harm & detriment. I will be exploring the theme of ‘compliance protects’ at my Compliance workshop in Brisbane on Thursday 21st March at Lightspace, Brisbane’s unique event venue and co-working warehouse. I will be providing you with the tools & insights to develop compliance arrangements that operate to support & protect the things that matter to you. Registration for the workshop is now open & can be accessed via the link below. See you in Brisbane Managing Compliance in the insurance industry

An Australian financial services licensee may appoint ‘authorised representatives’ to provide specified financial services on its behalf. Acting as an AR can be a cost effective way of operating a financial services business although most insurers require their MGAs & TPAs to hold their own AFSL. This is due to the risk that the AR presents to the insurer’s Licence. AR networks continue to be used within the Insurance Broking community however due diligence & compliance monitoring is being strengthened. There are regulatory requirements for appointing ARs & notifying ASIC. There are also rules & limitations in appointing sub-authorised representatives. Notification requirements also apply in respect of when an AR ceases to be authorised. These requirements should be captured in the Licensee’s compliance manual. In addition, the Licensee, if a subscriber to the GI Code or Insurance Brokers Code, will also have Code obligations in respect of the conduct of its ARs (GI Code see Parts 3-5 & Brokers Code see Part 8). Generally, the Licensee is responsible for the training, competency & conduct of its ARs & therefore should have a Monitoring & Supervision Program in place. This benefits & protects both the Licensees & Authorised Reps business. 𝑶𝒃𝒍𝒊𝒈𝒂𝒕𝒊𝒐𝒏𝒔 𝒐𝒇 𝒂𝒏 𝑨𝒖𝒕𝒉𝒐𝒓𝒊𝒔𝒆𝒅 𝑹𝒆𝒑𝒓𝒆𝒔𝒆𝒏𝒕𝒂𝒕𝒊𝒗𝒆 In addition to meeting the obligations of the Licensee, ARs have a number of independent obligations, including: Be appointed in writing as an Authorised Representative of the Licensee ; Not hold out that they have an AFS Licence. In this regard, the AR should include their AR number & disclose the relationship with the Licensee in all business documents & on their website; Provide disclosure documents (FSG, PDS) as required when the General Insurance Products are provided to Retail clients; Provide details of remuneration in an FSG; Keep records of insurance transactions; Comply with hawking prohibitions (retail clients) & misleading & deceptive conduct provisions; Ensure they act within the scope of authority given; & Comply with Product design & distribution requirements & TMD (when financial services are provided to retail clients). 𝘼𝙪𝙩𝙝𝙤𝙧𝙞𝙨𝙚𝙙 𝙍𝙚𝙥𝙧𝙚𝙨𝙚𝙣𝙩𝙖𝙩𝙞𝙫𝙚 𝙘𝙤𝙢𝙥𝙡𝙞𝙖𝙣𝙘𝙚 𝙢𝙚𝙖𝙨𝙪𝙧𝙚𝙨 It follows from the above, that the best practice is for the Authorised Representative to have its compliance measures captured in a Compliance Manual. The Manual should be tailored to the ARs business model & way of working & dovetail with the Licencee’s compliance requirements. Speak to me if you are an Authorised Representative requiring assistance with your compliance requirements or if you are an AFS licensee requiring assistance with your AR monitoring & supervision program.