A number of case studies examined in the sixth round of hearings involved problematic dealings between an insurer and the EDR body: previously FOS, now AFCA (the Australian Financial Complaints Authority). These included the CommInsure, TAL and AAI (Hunter Valley Storm) case studies.
Two policy questions, asked after the sixth round of hearings, were whether the duty of utmost good faith in section 13 of the Insurance Contracts Act does apply to the way that an insurer interacts with an EDR body, and whether it should apply. The Commission received a range of responses. The thrust of many of those responses was that it was appropriate for insurers to be subject to some form of duty when interacting with the EDR body.[1] I agree. The issue then becomes what duty and where should the duty be recorded.
I consider it preferable for this duty to sit alongside a pre-existing related duty in section 912A(1)(g) of the Corporations Act. That relevantly provides that an AFSL holder must:
if … financial services are provided to persons as retail clients:
(i) have a dispute resolution system complying with subsection (2) …
Subsection (2) of section 912A specifies that an AFSL holder’s dispute resolution system must consist of both an IDR procedure that meets certain standards, as well as ‘membership of the AFCA scheme’.[2]
As they presently stand, sub-sections 912A(1)(g) and (2) mandate the form of AFSL holders’ IDR and EDR systems, but they do not impose any conduct-related obligations on AFSL holders when providing or using those systems. I consider this to be an important omission. There is little benefit in mandating the existence of systems if there is no obligation to comply with those systems. As a result, I recommend that section 912A be amended to require that AFSL holders take reasonable steps to co-operate with AFCA in its resolution of particular disputes including, in particular, by making available to AFCA all relevant documents and records relating to the issues in dispute.
This proposal would address issues broader than those that were observed in the CommInsure, TAL and AAI (Hunter Valley storm) case studies, but I do not see any difficulty with this. There is no reason in principle to confine the class of affected entities to insurers (rather than all AFSL holders). The proposal will serve to give statutory force to the promises that AFSL holders have made to the EDR body, and will allow ASIC to take action if those promises are not kept.
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Recommendation 4.11 – Co-operation with AFCA Section 912A of the Corporations Act should be amended to require that AFSL holders take reasonable steps to co-operate with AFCA in its resolution of particular disputes, including, in particular, by making available to AFCA all relevant documents and records relating to issues in dispute. |
[1] See, eg, AFA, Module 6 Policy Submission, 19; AIST, Module 6 Policy Submission, 20 [30]; ALA, Module 6 Policy Submission, 32 [92]; ASIC, Module 6 Policy Submission, 37–8 [157]–[159]; CALC, Module 6 Policy Submission, 32–3 [121]–[124]; FRLC, Module 6 Policy Submission, 30; Legal Aid NSW, Module 6 Policy Submission, 10; Slater + Gordon Lawyers, Module 6 Policy Submission, 21 [89].
[2] Corporations Act s 912A(2)(c).