19 Jul 2012
Advertising and distributing insurance products: navigating the regulation
by David Gerber, Craig Hine
The challenge for issuers and distributors of insurance is making the right message clear while complying with relevant laws.
There is no shortage of regulation when it comes to advertising insurance products. It sometimes happens that there is a tension between the commercial position that a party is trying to achieve and the position allowed by regulations. Understanding where the boundaries lie is vital to avoid overstepping the mark with an advertising campaign which is intended to be as effective as possible within the confines of the law. But where do the boundaries lie?
ASIC's view can be gleaned, at least in part, from information it releases from time to time. For example, in February this year ASIC released Regulatory Guide 234 – Advertising financial products and advice services (RG 234) and, more recently, ASIC stated its views on certain types of advertising. Such guidance and statements provide helpful insights into ASIC's expectations when it comes to the advertising of financial products.
Unsurprisingly, many of ASIC's concerns relate to misleading and deceptive advertising. However, it is important to remember that there are other rules relevant to advertising and distributing insurance products.
Misleading and deceptive advertising
RG 234 is particularly helpful for determining when ASIC may consider that advertising will be misleading or deceptive for particular mediums. A focus of RG 234 is online advertising. For example, ASIC expresses a view that consumers should not need to go to another website or document to read disclaimers or warnings to correct a misleading impression created by an advertisement.
One key area of concern for ASIC is advertising which compares the price of insurance products which do not have sufficiently similar features and which does not clearly identify those differences. The commercial advantages of this type of advertising make it a popular choice for product issuers. However, if it is not done properly, there is a good chance ASIC will be paying close attention.
How alike must two products be for them to be substantially similar? And how clear must be any disclaimer pointing out the differences between products? The answer to these questions may vary depending on the medium used for the advertisement. Some products may be too dissimilar to compare using particular mediums or, in some cases, any medium.
What's most important is the overall impression created by an advertisement. Any comparison when considered in conjunction with an appropriately communicated disclaimer should be sufficiently clear so as to not create doubt or confusion in the mind of the consumer.
Another key area of concern for ASIC is advertising which falsely creates the impression that cover is available in particular circumstances or that such cover is not subject to any qualifications.
Advertising the scope of insurance cover
ASIC's recent media release (12-135MR) shows that ASIC is of the view that referring a consumer to a product disclosure statement (PDS) in an advertisement will not be sufficient to correct a misleading impression.
That media release refers to advertising by an insurer which included a table comparing the cover provided by that insurer against that provided by four of its competitors. By including a tick or a cross next to different types of cover, ASIC took the view that the advertisement gave the impression that the insurer provided unqualified cover for the items ticked. In fact, this was not the case. Some of the cover had limitations.
The advertisement referred consumers to the relevant PDS, which contained the conditions and exclusions limiting the cover. In this case ASIC's view was that this was not sufficient to correct the misleading impression. ASIC's message was that "qualifications should be given sufficient prominence to effectively convey the key information".
Avoiding misleading and deceptive advertising is only one of many considerations to which issuers and distributors of insurance products need to pay close attention.
Standard cover and distribution of insurance
It is important to remember that an insurer must give written notification if it derogates from standard cover. It must clearly inform a prospective insured in writing if an exclusion applies under a "prescribed contract" which is in addition to those allowed by the Insurance Contracts Regulations 1985 (Cth) or which prevents cover for a "prescribed event". The insurer must inform before entering into a contract. If it fails to do so, the insurer may become liable pursuant to section 35 of the Insurance Contracts Act 1984 (Cth) to pay an amount in respect of the excluded cover upon the happening of that event. This rule applies unless the insured knew or a reasonable person in the circumstances could be expected to have known that cover for the event was excluded.
Insurers should also take care in the use of different distribution channels for marketing insurance products. Some distribution channels may allow a customer to purchase a product before having an opportunity to view the relevant PDS or to be given a Financial Services Guide (FSG). In those situations it is necessary to ensure that all necessary disclosures are made by some other means. Such disclosures might include, for example, the time critical FSG-related disclosures required by section 941D of the Corporations Act 2001 (Cth) and information about relevant policy exclusions to avoid the operation of section 35 of the Insurance Contracts Act 1984 (Cth).
Advertisers of insurance product should also keep in mind the requirements to make specific disclosures in connection with the advertising of financial products pursuant to section 1018A of the Corporations Act 2001 (Cth).
By their very nature, insurance products can be complex. Those advertising them need to take care to ensure that potential customers are receiving the right message. It is unlikely that the content of an advertisement for an insurance product will disclose enough information for a consumer to make a decision about purchasing that product without undertaking further investigations. In most cases, the message for consumers will be to consider the advertisement in conjunction with the relevant PDS before making a decision to purchase the product.
The challenge for issuers and distributors of insurance is making that message clear while continuing to comply with relevant laws.
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 A "prescribed contract" means a contract of insurance that is included in a class of contracts of insurance declared by the Insurance Contracts Regulations 1985 (Cth). It includes, for example, insurance contracts covering damage to motor vehicles and home building and contents, certain contracts covering an individual for injury, illness or death and travel insurance policies.Back to article
 A "prescribed event", in relation to a prescribed contract, means an event that is declared by the Insurance Contracts Regulations 1985 (Cth) to be a prescribed event in relation to that contract. Back to article