Executive summary :
Reimagining DDO as more than just compliance
At first glance, the design and distribution obligations (DDO) could be seen as compliance boxes to tick. But a closer look reveals how they can create the momentum for better insurance products, better customer outcomes and, ultimately, better businesses.
Australia’s insurers have much to do between now and April 2021, when new design and distribution obligations (DDO) become effective. The changes will transform the way insurers distribute products to retail consumers in Australia.
While the obligations of DDO are significant, forward thinking insurers will go above and beyond compliance to simplify products and make deep, lasting improvements to customer outcomes.
The new obligations
Australia’s DDO requirements include:
- Undertaking a target market determination (TMD) for each retail product, including reviewing triggers that may suggest the TMD is no longer appropriate
- Taking steps that are reasonably likely to result in distribution consistent with the determination
- Notifying ASIC of significant dealings that are inconsistent with the TMD
- Maintaining information relating to the TMD and distribution of the product, and providing this to ASIC upon request.
Now is the time for issuers of financial products to prepare.
Major consequences for inaction
From April 2021, it will not be possible to distribute a retail product unless a target market determination (TMD) has been undertaken.
If the TMD or associated controls are deemed inadequate, distributors may no longer market the product.
The stark consequences of inaction have already been laid bare in other nations. For example, after some UK firms underestimated their own distribution obligations, their products were removed from sale.
Australian insurers cannot afford to make the same mistakes. But there’s more to this than compliance and risk management. There’s opportunity too.
The higher you aim, the bigger the rewards
For many financial services institutions, DDO could be a game changer. By designing a DDO framework driven by purpose (rather than mere compliance) insurers will be more likely to:
- Build products that meet the needs of target customers
- Establish distribution controls to ensure those needs are consistently met
- Develop governance and culture to ensure products are sustainable
- Have people, processes and technology lined up and ready for the new DDO regime.
To achieve this, firms need to mobilise not only regulatory specialists, but also colleagues responsible for compliance, products, customers, legal, technology, and marketing. In order to be ready for DDO, we propose organisations can prepare in three ways.
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