Future of group purchasing bodies unclear

9 March 2020
| By Jassmyn |
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Organisations considering the use of a group purchasing body (GPB) could look to alternatives given the corporate watchdog has signalled the end of the GPB relief.

The Fold Legal said the current GPB relief might be replaced soon as the Australian Securities and Investments Commission (ASIC) had indicated that it would consult with the industry and other stakeholders in 2019 to decide what changes were required by the end of 2020, but this had not 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,” it said.

A GPB arranges or holds insurance or risk cover for its members but do not have to meet some legal requirements, such as holding an Australian Financial Services Licence (AFSL).

However, there are constraints such as GPBs cannot earn a profit and can only receive some very specific financial benefits for arranging the protection, and they are only able to recover their legitimate administrative costs and this means they are not able to average out their costs.

The Fold Legal noted that because of the restrictions, GPBs might be better placed to partner with an AFSL holder as an authorised representative or general insurance distributor.

The Fold Legal said: “As an authorised representative or general insurance distributor the GPB may be able to:

  • Agree a more flexible or lucrative commercial relationship with the AFSL holder;
  • ‘White-label’ the insurance if they’re an authorised representative. This means they can offer the product under their own branding; and
  • Earn profits or benefit financially from providing these services as long as they tell their members”.

The firm said if insurance was mandatory then there could 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,” it said.

“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.”

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