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Client Update: General insurance sales by telephone

3 November 2010

In brief: ASIC has released a consultation paper which considers whether retail clients can be given a quote for general insurance products over the phone before being given a Product Disclosure Statement. If allowed, this will facilitate the sales of general insurance products by telephone. Partner Dean Carrigan (view CV), Senior Associate Amanda Taylor, and Law Graduate Alexander Edwards explain.

The Australian Securities and Investments Commission (ASIC) has released Consultation Paper 144 Giving a PDS during telephone sales of general insurance products (CP 144), regarding the requirement to provide a retail client with a Product Disclosure Statement (PDS) in circumstances where the client is invited to apply for a general insurance product (through the provision of a quote for a particular policy) during a telephone call.

Under the Corporations Act 2001 (Cth), the provision by an insurer of a quote may constitute an invitation to apply for the issue of an insurance policy on the terms specified in the quote. As the quote may constitute an 'offer to issue' a policy, a PDS must technically be given at, or before, the time the quote is provided.

Why has ASIC released the consultation paper?

ASIC has received submissions from the general insurance industry that the requirement to give a PDS at, or before, the time of making an invitation to apply for the issue of a financial product is not appropriate where:

  • a retail client is invited to apply for a general insurance product in the form of a quote for the premium payable on a particular insurance policy; and
  • the quote is given during the course of a telephone call.

ASIC has stated it does not have sufficient information about whether the current limitations on the ability to provide a quote during a telephone call with a retail client are a widespread practical problem for the general insurance industry that warrants either class order relief or law reform.

What does the consultation paper consider?

ASIC is considering whether it would be appropriate to give class order relief to:

  • allow quotes for general insurance products to be provided in the course of telephone calls without needing to give a PDS at, or before, the time when the quote is provided; and
  • require a regulated person who provides a quote without giving a PDS to instead:
    • give the client the PDS as soon as practicable after giving the quote, and before the client applies for the policy that is the subject of the quote; and
    • provide the retail client with certain information before or at the time the quote is provided, including advising the client that:
      • the client will have to disclose personal information in order to receive a quote; and
      • receiving a quote does not bind the client to a legal obligation; and
      • a PDS will be provided as soon as practicable and that the client should consider the information in the PDS before deciding whether to buy the insurance product; and
      • by receiving the quote, the client is not covered by an interim insurance policy (unless also offered in the phone call).

What does this mean for insurers?

There is an existing concession to the PDS provision requirement for risk insurance products, which allows a retail client to expressly instruct that a risk insurance product be issued immediately, in circumstances where a PDS has not yet been issued. The retail client must still be sent a PDS as soon as practicable following the call. CP 144 does not propose to make any amendments to that existing concession for risk insurance products.

ASIC makes it clear that any relief to be made available as a result of this consultation will not undermine existing protections for retail clients where an insurance policy is issued during, or because of, an unsolicited telephone call, including the anti-hawking provisions and the requirement in section 992A(3)(a) of the Corporations Act 2001 that a PDS must be provided before a retail client becomes bound by an insurance contract.

Rather, ASIC is considering how it may streamline the process for providing telephone quotes in a telephone call with a retail client, in circumstances where the provision of a quote may technically constitute an offer to issue a general insurance product.

ASIC invites feedback from consumers, product issuers and financial services professionals on whether:

  • the current PDS requirements result in significant commercial difficulties for general insurers marketing their products to retail clients in an efficient and cost-effective way; and
  • consumer detriment would likely result from the proposed change.

ASIC is seeking feedback on these proposals by 9 December 2010. Any class order relief resulting from the consultation process is expected to be released in January 2011.

For further information, please contact:

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