INSURANCE PDS OBLIGATIONS – TICKING THE BOX AND THINKING OUTSIDE IT.
Published on Nov 23, 2020
Product Disclosure Statements (PDSs) are subject to a range of regulatory obligations but they can also support commercial objectives (for example, a business that prides itself on speaking in plain English might want to present easy-to-read documents). Below is a short refresher on content vs convenience.
PDSs are not ‘set and forget’ documents. They need to be regularly reviewed and updated based on:
- Changes to product, insurer or legislation – e.g. design and distribution and unfair contract laws will impact terms and conditions including the information contained in your PDS;
- Changes to other extraneous material included in the PDS – e.g. changes to the Insurance Contracts Act such as the wording of the duty of disclosure notice or other changes, including privacy disclosures;
- Regulatory guidance and instruments such as ASIC instruments, ASIC Regulatory Guides (e.g. Regulatory Guide 271 which includes enforceable provisions), good disclosure principles and other guidance contained in Regulatory Guides (like RG168 and RG221) or ASIC Information Sheets being developed or updated;
- Product intervention orders issued by ASIC – these may require product issuers to include additional disclosure;
- Industry code updates – e.g. the General Insurance Code of Practice was updated in 2020; and
- Customer feedback/complaints – e.g. reviewing relevant customer feedback allows you to identify any ongoing systemic issues that are causing customer complaints. These may need to be addressed in the PDS.
Tip: Staying abreast of regulatory changes and the regular review of your PDS should form part of your risk management and compliance framework. When DDO laws come into effect in October 2021, there is an expectation that all PDSs will be regularly reviewed and updated – start developing the review process now.
It is not necessary for a PDS to be a single document. PDS information can be incorporated by reference, i.e. the PDS can refer to other documents or information, provided the information is in writing, publicly available and easily accessible. For example:
- Supplementary PDSs: These can be used to correct misleading or deceptive statements, include missing information or update the information in a PDS;
- Terms and Conditions: These can be hosted on a website and updated regularly (however every update must be communicated to the insured); and
- Product Excess and Discount Guides (PED Guides): These are used for specific insurance products (e.g. motor vehicle and home and contents) to provide information about the costs of the insurance policy (e.g. premiums and excess payable, discounts available, no claims bonus) and the claims process. PED Guides are not required by law but insurers use them to move prescribed content into another document to simplify and shorten the PDS to promote product understanding.
Tip: Any information that is incorporated by reference is still subject to the same rules as a PDS, so make sure that a supplementary document is clear, concise and effective and is not misleading or deceptive. Sanity-check whether more than one document is really necessary – it can be hard to deliver and difficult to maintain.
Combining the FSG and PDS
In some cases, it is possible to combine the FSG and PDS with the policy wording – effectively creating a one-stop shop for your disclosure document. This can help to ensure there are no problems when the document is delivered because it is one document rather than 2 or 3.
Whether you are using a digital channel for the sale of the insurance or it is a face-to-face sale, it is convenient to have one single document that covers all the required disclosures. Check whether you qualify for the use of a combined FSG and PDS.
If you are a representative of the insurer (for example an authorised representative of the insurer or agent of the insurer) you can combine your FSG with the insurer’s PDS.
In order to meet the ‘clear, concise, and effective disclosure’ obligation, most PDSs include defined terms. There are, however, no specific obligations that apply to defined terms. The question of how to balance the flow of reading and consumer understanding with the need to define certain terms in a manner that will make it clear that they are defined, is a tricky one.
As a general principle, words and phrases in a PDS possess their natural and ordinary meaning unless the word or phrase has acquired a special meaning through a definition. Identify defined terms by differentiating them from other words in the document (for example, bolding, italicising or capitalising defined terms). Definitions can be included in a specific ‘Glossary’ or ‘Defined Terms’ section at the beginning or end of a PDS, or terms can be defined as they come up in the document.
Tip: Make sure all defined terms are used in the PDS to avoid confusion and add a warning at the start of the PDS that some terms have been given a special meaning.
A PDS can be provided electronically, provided it is given to a client in a manner that allows them to view the PDS and save it. Normally this means sending the PDS as a PDF attachment or emailing a hyperlink to view the document. However, technology could also be used to innovate insurance products, such as making PDFs interactive or personalising PDS documents as part of an online digital platform.
Tip: Make sure the PDS can be downloaded and saved, regardless of how it is provided.
With technology solutions it is possible to innovate and simplify. Beyond using plain English to make the PDS more understandable and more accessible, you should seize the opportunity offered by the new design and distribution obligations (commencing on 5 October 2021) to:
- Modify the design of your products;
- Re-draft the documentation accordingly; and
- Consider how you can innovate so that a product is unique in the market.
By being the first to seize new opportunities and improve your products (while still meeting your compliance obligations), you will be able to position your business as an industry leader.
If you issue or distribute a financial product that requires a PDS and you are not certain it is compliant, get in touch – we can review the PDS and provide advice on financial services regulatory requirements.