The Federal Government has opened consultation on a proposal to remove the exclusion of insurance claims handling from the definition of financial service.
Industry stakeholders were worried about the unintended consequences of removing the exclusion and therefore the Government has opened consultation.
A recommendation from Commissioner Kenneth Hayne in the Royal Commission's final report earlier this year, the change would allow ASIC to enforce a higher standard of behaviour ensuring consumers could expect the same standard from insurers handling claims as the can from all financial service providers.
Despite supporting the recommendation, the Government has opened consultation to stakeholders, recognising the industry is concerned unintended consequences may result from the change.
One such concern is that claims handling staff may suddenly be deemed as providing personal financial advice.
A Treasury consultation paper released late last week argues removing just the insurance claims handling exemption might create uncertainty over what activities are or aren't regulated. Additionally, it said ASIC's ability to increase its regulatory oversight of claims handling would be significantly limited.
Primarily, Treasury outlined concerns that the change might trigger a number of requirements under the Corporations Act that would apply to AFSLs where they provide financial advice in the course of handling an insurance claim.
Treasury said the heavy compliance burden which would fall on insurers or third parties involved in insurance claims handling would result in increased costs which would ultimately be borne by the consumer. However the consumer would not be provided with any significant benefit as a result.
Speaking at the Insurance Council national conference last week, Assistant Treasurer Stuart Robert said the consultation paper's proposed model of removing the current exemption and then defining handling and settling an insurance claim as a new financial service for the purposes of the Corporations Act would mitigate any unintended consequences.
"I strongly encourage you all to engage with this consultation process and to provide your views to Treasury," Robert said.
"The Government will then carefully consider all submissions before deciding on the final proposal to be implemented."
Consultation is now open and will close on March 29.