ASIC has reached out to the Insurance Council of Australia, Council of Australian Life Insurers (CALI), and Financial Services Council (FSC) about its review of over 100 target market determinations (TMDs) for general and life insurance products.
Described as a “targeted, risk-based exercise”, it considered a sample of general and life insurance products considered by ASIC to be higher risk and/or potentially provide low value to consumers.
This week, it issued its first stop order for life insurance products against ClearView Life Assurance for DDO failures.
In its TMD review of over 100 products, ASIC found some “good practices” such as a clear definition of a ‘negative target market’, i.e. the class of consumers for whom the product would not be suitable and product eligibility requirements.
However, others provided less detail, using broad statements to describe the target market or failing to include details of the consumers’ financial situation in their ability to pay premiums and other costs.
The review flagged numerous instances of broad statements that failed to specify details, such as some TMDs on distribution and on review triggers.
ASIC found the typical period for reporting complaints data varied from one to six months, though one TMD did not include a specific period.
Initial review periods were within one or two years from the date the TMD was made, though ASIC urged insurers to consider a shorter time frame.
“A significant impact on the product such as a change to the TMD based on a review trigger, a significant dealing outside the target market, or a change in a product’s distribution channel would suggest that the TMD’s next ongoing review should be within 12 months,” it said.
The corporate regulator flagged that its initial “facilitative compliance approach” with the DDO regime has shifted to closer scrutiny with active supervision and enforcement.
ASIC added: “We have commenced civil penalty proceedings against a distributor of an investment product and an issuer of a credit product for alleged DDO breaches. We are also considering further stop orders and have several other DDO-related investigations underway.”
Life insurers should not adopt a ‘set-and-forget’ approach to their TMDs, the regulator warned, and insurers should demonstrate a consumer-first mindset through their DDO obligations.
“The FSC has led compliance efforts with the new DDO regime by developing template target market determinations and data standards for the financial services industry, which have been adopted by life insurers, fund managers, and superannuation trustees,” an FSC spokesperson told Super Review.
“As with ASIC’s targeted reviews of DDO compliance over recent months, the FSC welcomes the additional insight and clarity around how the industry can improve its practices to better inform and protect customers.”
The organisation, which has more than 100 member companies, said it will liaise with the life insurance industry on whether updates to its TMD templates would be appropriate to reflect ASIC’s recent guidance.