Jaime Lumsden Kelly
A little known technicality in the Corporations Act may mean that some insurers and brokers may not realise they are operating a ‘binder’ when arranging group insurance, according to The Fold Legal (The Fold).
Solicitor Director of The Fold, Jaime Lumsden Kelly said under the Corporations Act, a binder exists any time a broker or agent has the ability to add an insured to a policy without referring to the insurer. “This can include master policies and group policies where the broker or agent has the authority to immediately insure a person, charge according to a schedule of rates and notify the insurer after the event. This is the case, even though no binder agreement is in existence,” she said.
The general insurance industry treats group policies as contracts of insurance that are issued to a primary policyholder and a defined category of people, Ms Lumsden Kelly said. “The policyholder, or their broker, can extend the benefit of the policy to those people and issue certificates of insurance to them. Master policy arrangements are similar. Technically, a binder is different as it involves issuing a separate contract of insurance to each insured person.”
Ms Lumsden Kelly said this is important for brokers dealing with retail clients because a Financial Services Guide (FSG) must disclose binder arrangements and what they mean. “Group personal accident policies are typical examples of ‘non-standard’ binders which might require disclosure in an FSG.”
Ms Lumsden Kelly said insurers and brokers should also be mindful when managing group insurance arrangements involving retail clients, such as group personal accident, as any person who elects to be covered by the product must usually receive a Product Disclosure Statement. “This doesn’t apply if they have automatic access to the insurance benefits and their employer pays for the insurance, for example, as is the case for many corporate travel and personal accident policies.”
