Offering insurance products to your clients
Friday, 9 December 2011
All businesses are looking for that value-add or that other way to grow the revenue pool. One method that is becoming increasingly popular for freight forwarders is to pair with an insurer or insurance broker and offer marine cargo insurance to the shippers at the point of sale.
Of course being able to offer insurance requires compliance with the regulations that govern the sale of insurance. Primarily, it means complying with Chapter 7 of the Corporations Act, otherwise known as the Financial Services Regulations (FSR).
The sale of insurance, and other financial products, is governed by the FSR. The general position is that selling (known as dealing) or providing advice about an insurance product or service must only be done by an entity that holds an Australian Financial Services Licence (AFSL) or is authorised by the holder of an AFSL to sell or advise individuals. At present forwarders are able to sell insurance on behalf of an insurer by applying for their own AFSLs or by being appointed either as a general insurance distributor or an authorised representative of an Australian authorised insurer or an insurance broker (who has an AFSL that authorises it to issue insurance products).
Licensing requirements
Before applying for an AFSL or agreeing to become an authorised representative or distributor, you will need to ensure that the insurer or broker you propose to act on behalf of has an AFSL that permits it to deal in general insurance products.
In addition, the insurer whose product you propose to issue must be authorised pursuant to the Insurance Act 1973 to conduct insurance business in Australia. An entity may be authorised to conduct insurance business in Australia either as an authorised insurer with a physical presence in Australia or as a Lloyd's underwriter. Lloyd's underwriters have a specific permission to carry on insurance business in Australia provided for in the Insurance Act.
In the case of Lloyd's, a Lloyd’s syndicate may appoint a local representative (known as a cover note holder) that will source business on its behalf. While the Insurance Act permits the syndicate to conduct insurance business in Australia, its ability to sell insurance products is still dependent on its access to a valid AFSL, either its own, its cover note holder’s or through its brokers.
Should you be an AFSL holder, authorised representative or a distributor?
Having your own AFSL allows you the flexibility of controlling the way you run your business, subject to the terms of your licence, without any restrictions placed on you by an entity that you may act for if you're an authorised representative or distributor. However, as an AFS licensee, conditions may be placed on your licence that will require you to (among other things) have in place risk management and dispute resolution systems, comply with disclosure and conduct obligations as well as require you to invest additional time and money into applying for a licence and complying with all of your licence conditions.
As an authorised representative, you are a representative of the AFSL holder and as such you are permitted to act, subject to the terms of your authorisation, as if you were the AFSL holder with the rights granted to it by its AFSL. Therefore, your conduct will be closely monitored by the AFSL holder to ensure that you do not do anything that may put its AFSL at risk, but you are permitted greater latitude than a distributor when it comes to providing advice to the ultimate shippers.
Finally, the FSR regime through the ASIC Class Order 05/1070 - General Insurance Distributors (Class Order), permits you to be appointed as a general insurance distributor without having to be appointed as an authorised representative. One benefit of general insurance distributors is that they are much simpler to appoint (no requirement for registration with ASIC) but they are restricted to only dealing in general insurance products and cannot provide advice.
An intermediary cannot be both authorised representative and a distributor of the same AFS licensee. This means that the decision to choose one or the other is all the more crucial.
The decision as to which approach to take will depend on a number of factors. These factors include amongst other things: the long term goals of your business, the determination as to whether you wish to offer one insurer’s products or have access to many insurers when seeking quotes, the insurers own preferences and the shipper’s preferences.
To discuss what options may be available to you please contact either Danella Wilmshurst or Mark Kimberley at HWL Ebsworth.
Important disclaimer: The material contained in this publication is of a general nature only and is based on the law as at 8 December 2011. It is not, nor is intended to be, legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.
For further information please contact:
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