A group purchasing body (GPB) arranges or holds insurance or risk cover for its members. They don’t have to meet some legal requirements (like holding an AFSL) but with these benefits come certain constraints.
What do GPBs do?
A GPB is anyone who arranges or holds insurance or risk cover for its members provided they don’t give financial product advice or issue insurance products. For example:
Generally, businesses need to be appointed as an authorised representative or be licensed to provide these type of services. But ‘eligible’ GPBs don’t have to meet some legal requirements.
Who is eligible?
A GPB is eligible if they don’t have an Australian Financial Services Licence (AFSL), or have a limited AFSL, and they:
If the GPB does have an AFSL (but not a limited AFSL) or is an authorised representative, they are eligible if they only arrange or hold insurance or protection for their officers, employees or their relatives.
What relief do GPBs receive?
Eligible GPBs are not required to:
There are many restrictions attached to this relief
While this sounds good, it comes with many restrictions. For example, GPBs can’t earn a profit and can only receive some very specific financial benefits for arranging the protection (like payment for the reasonable costs of providing the services and rebates for expenses they incur). GPBs are only able to recover their legitimate administrative costs and this means that they are not able to ‘average out’ their costs, eg estimate their costs and charge a fee for that amount to their members.
GPBs must also meet several stringent requirements including:
1. They must establish a facility to allow each member to confirm that the group policy has been issued and remains current.
2. If the protection will not apply for the period represented (including where it is cancelled or not renewed), they must:
3. They must provide information and statements to group members as soon as possible after a group member has access to the cover, including:
What are the alternatives?
Because of these restrictions GPBs may be better placed to partner with an AFSL holder as an authorised representative or general insurance distributor.
As an authorised representative or general insurance distributor the GPB may be able to:
If insurance is mandatory then there may be another option
Soon a deferred sales model will apply for add-on insurance products that are sold to retail clients. This means that a GPB will have to wait four days before offering a member an insurance product that is usually sold alongside another good or service. A GPB may avoid this if the insurance is not offered separately (by opting in) but is instead bundled as part of the benefits of membership.
For example, a sports club could:
Then it wouldn’t need to wait four days to offer members the insurance and the GBP could access the relief outlined above. This would help to minimise the impact of regulation on the group’s arrangements.
A word of warning
The current GPB relief may be replaced soon. ASIC indicated that they would consult with the industry and other stakeholders in 2019 and decide what changes were required by the end of 2020 but this hasn’t happened yet.
ASIC also hasn’t updated or replaced Regulatory Guide 195 (group purchasing bodies for insurance and risk products) since 2010, so it can’t be relied on. In other words, things could change.
If you’re considering offering protection to your members or want to know how to structure your group purchasing arrangements, get in touch. We’d be happy to help.