Claims Handling and Settling - Who needs a licence?

Following the Hayne Royal Commission, Parliament passed the Financial Sector Reform (Hayne Royal Commission Response) Act 2020. The Act covered a number of reforms, including ASIC regulations covering claims handling and settling services for insurance products. The reform often referred to as “Claims as a Financial Service” outlined who must have an Australian Financial Services Licence to handle and settle claims. AFSL applications were due to be submitted by 30 June 2021 with the requirements coming into effect on 31 December.

What activities are considered as a claims handling service?

The Act states "claims handling and settling" activities include:

Making a recommendation or stating an opinion that could influence a decision whether to make an insurance claim;
Assisting another person to make an insurance claim;
Assessing whether an insurer is liable under an insurance product;
Making a decision to accept or reject all or part of an insurance claim;
Quantifying an insurer’s liability under an insurance product;
Offering to settle all or part of an insurance claim; and
Satisfying a liability of an insurer under an insurance claim.

Who needs a licence?

There was initially some confusion about who needed the licence and who didn’t.

It boils down to who has the authority to make a decision on accepting or rejecting the claim. Those doing only claims fulfilment or making a recommendation to the insurer do not need their own authorisation. That’s the responsibility of the insurer.

Here’s the majority of those who require AFS Licences:

Insurer / Insurance fulfilment provider – those who issue the insurance product;
Insurance Brokers that conduct a business of arranging contracts of insurance for prospective insureds and provide a claims handling and settling service on behalf of the insurer (see below);
Insurance Claims Managers if they provide a claims handling and settling service on behalf of one or more insurers and do this as a business;
Claims Managers who provide a claims handling and settling service on behalf of the insurer and do so as a business or as primarily part of their business;
Claimant Intermediaries that represent insured people in pursuing a claim and do so in return for any benefit (monetary or otherwise); and
Financial advisers who act on behalf of insurers and provide financial product advice to an insured person, including a third-party beneficiary.

Who is exempt from the Act?

To clear up some confusion the Treasury has issued regulations to exclude certain parties not intended to be captured by the Act. These people are excluded because handling claims is typically not their core business and often do so for no monetary benefits.

Some that are exempt include:

Insurance brokers who meet the criteria are exempted because claims handling is typically not their core business and they often do it for no monetary benefits.
Strata or property managers do not require a licence.
Specialists who provide an expert opinion to help an insurer assess a claim, such as engineers, builders and repairers are also exempt unless they are authorised to reject claims.
Loss assessors and adjusters are excluded
Authorised Representatives (AR’s) have been determined they are part of the insurer and are covered by the insurer’s licence. There are formal processes for appointing and notifying ASIC about ARs.

What are licensees obligations?

With having an AFS licence comes a number of obligations. ASIC says licensees must provide financial services efficiently, honestly and fairly.

The regulator says this means licensees will need to handle and settle insurance claims:

In a timely way
In the least onerous and intrusive way possible
Fairly and transparently, and
In a way that supports consumers, particularly ones who are experiencing vulnerability or financial hardship.

The benefits of the “Claims as a Financial Service” reform will be to the end customer and policy holder when they make a claim ensuring they are supported and treated fairly and in a timely manner.