ASIC Corporations (Incidental Retail Cover) Instrument 2022/716

Incidental product: The definition inserted into subsection (12) of section 761G is central. A general insurance product (called “first product”) is an incidental product only if all of the following apply:

(a) The first product is provided under a contract of insurance that includes another general insurance product (the “wholesale product”) that is provided to the person as a wholesale client. So there must be a single contract covering at least two general insurance products, one of which is genuinely provided to a wholesale client (by reference to the existing tests in s761G). The note to the instrument cross-references subsections 764A(1A) and (1B) concerning contracts of insurance that provide more than one kind of cover.

(b) The first product is “incidental to” the wholesale product. This is a qualitative test - the first product must be subordinate, secondary, or ancillary in context. The instrument does not define “incidental” further, so it will depend on the facts (e.g. a small public liability extension to a commercial property policy might be incidental; a separate standalone policy covering the same risk would not).

(c) The first product is included in the contract and there has been no separate decision or election in relation to the first product by the person acquiring the wholesale product. This means the insured cannot have consciously chosen to add the cover; it must be automatically included in the package without an opt-in or selection process. If the insured ticked a box, selected from a menu, or negotiated the inclusion, condition (c) fails.

(d) The issuer of the first product and the wholesale product does not offer the first product as a standalone general insurance product on the same terms. In other words, the insurer does not sell that cover separately to the public or to other clients under identical policy wordings and pricing. Offering it on different terms (e.g. with different limits or exclusions) would not necessarily disqualify it, but “on the same terms” is a strict test.

(e) No separate premium is payable by the person acquiring the wholesale product for inclusion of the first product. The total premium may be bundled, but no identifiable or separately itemised premium can be allocated solely to the incidental cover. Even a notional premium breakdown in the policy schedule could breach this condition.

If any one of these conditions is not met, the product is not an incidental product, and the usual retail/wholesale classification rules apply without the modification.

Wholesale client under section 761G includes individuals who meet the $500,000 product value test, professional investors, and certain small business holders, plus the general insurance product categories in subsection (5) (e.g. products provided to businesses with turnover above $5 million, or for certain types of commercial cover). The instrument only affects the application of subsection (5) via the new paragraph (5)(c). It does not alter other wholesale categories.

General insurance product has the meaning given in the Corporations Act. It includes products like property, liability, motor, travel, and accident insurance, but not life insurance or health insurance.

Parts 7.6 (other than Divisions 4 and 8), 7.7, 7.8, 7.8A and 7.9: These are the Parts of the Corporations Act that impose licensing, disclosure, conduct, and reporting obligations primarily for retail clients. Division 4 of Part 7.6 concerns financial product advice (including personal advice) and Division 8 concerns dispute resolution (including internal and external dispute resolution). Those two divisions are not affected by the modification. So even if a product is an incidental product and the client is treated as wholesale for the purposes of other provisions (e.g. Product Disclosure Statement requirements in Part 7.9), the client may still retain rights or obligations under the advice and dispute resolution provisions as if they were retail. This creates a layered compliance obligation.

The instrument primarily affects issuers of general insurance products that bundle multiple covers in a single contract. These are often insurers underwriting commercial packages (e.g. a business insurance policy that covers property, business interruption, public liability, and also includes a small motor vehicle cover for a company car or a minor cyber extension). The wholesale product might be a high-limit property policy provided to a large corporation as a wholesale client; the incidental product could be a small automatic cover for temporary replacement vehicles. Under the instrument, that incidental cover remains retail unless it meets the “incidental product” definition - which then removes it from the subsection (5) wholesale categories. So the insurer may need to treat that client as retail for that cover, triggering disclosure and conduct obligations.

Although the instrument modifies the law as if it were applied to Parts 7.6-7.9, it does not affect the licensing regime itself (Part 7.6, other than Divisions 4 and 8). So an insurer that holds an AFS licence authorising it to deal in general insurance products to retail and wholesale clients is unaffected in its licensing, but the specific obligations under those Parts change depending on the classification.

The persons acquiring insurance are also affected - typically businesses that purchase a bundled policy where the main cover is clearly wholesale (e.g. a large commercial property policy) but some ancillary cover might otherwise fall into retail categories. Without the instrument, that ancillary cover could be classified as retail, giving the client additional protections (PDS, cooling-off, dispute resolution, etc.). With the instrument, if the cover meets the incidental product definition, the client loses those retail protections (except for advice and dispute resolution, which are carved out). So the client receives less disclosure and fewer statutory rights in respect of that cover.

Intermediaries such as insurance brokers and financial advisers need to be aware of the change. When arranging a packaged policy for a wholesale client, they must check whether any component cover would be an incidental product. If so, the client’s classification for that component may be retail, and the broker may owe additional duties (e.g. under Part 7.7 - financial services disclosure) that they would not owe if the whole policy were wholesale.

Compliance professionals, legal advisers, and product designers are directly affected. They must review existing and new bundled products to ensure correct classification and compliance with the instrument’s conditions. Underwriters need to structure policies so that incidental cover is genuinely automatic, not separately elected or priced, and not sold standalone on the same terms.

The instrument also affects ASIC’s regulatory oversight. ASIC may scrutinise insurers’ classification decisions and may take enforcement action if they incorrectly treat an incidental product as wholesale under subsection (5)(b) when it does not meet the definition.

The instrument does not create new duties or rights directly; it modifies when existing duties and rights apply by altering the retail/wholesale boundary. For a general insurance product that is an incidental product (meeting all five conditions), the insurer does not have to provide the retail-specific disclosures, protections, and processes under Parts 7.6 (except Divisions 4 and 8), 7.7, 7.8, 7.8A and 7.9. This means:

• No requirement to give a Product Disclosure Statement (PDS) under Part 7.9 for that product if the client is otherwise wholesale for the main product.
• No obligation to give a Financial Services Guide (FSG) or provide retail-specific disclosure under Part 7.7.
• No obligation to comply with the conflict-of-interest and soft-dollar provisions in Part 7.7A (though that Part is not explicitly listed; it is not modified, so it applies normally).
• No obligation to comply with the claims handling and reporting standards in Part 7.8 for retail clients (but note that general insurance is subject to other obligations under the Act).
• The client loses the right to receive those disclosures and the associated protections (e.g. cooling-off rights under s1019A, though cooling-off does not apply to general insurance generally).

Crucially, Divisions 4 and 8 of Part 7.6 are not affected. So:

• Division 4 (financial product advice - including the best interests duty and appropriate advice obligations) continues to apply as if the client were retail for that product, if the client would otherwise be retail under the unmodified section 761G. This means an adviser giving personal advice about an incidental product (e.g. recommending that a client accept the bundled policy) must comply with the best interests duty and other obligations.
• Division 8 (dispute resolution - internal and external dispute resolution through AFCA) also continues to apply. So the client retains retail-level access to the Australian Financial Complaints Authority in respect of that incidental product, even if other parts of the policy are wholesale.

This creates a compliance asymmetry. An insurer may not need to issue a PDS for the incidental product but may still need to handle complaints under the retail timeframes and standards.

The instrument does not affect the duty to act efficiently, honestly and fairly under s912A, nor other licensing obligations. It also does not affect the application of the ASIC Act (e.g. unfair contract terms provisions) which are not tied to retail/wholesale classification in the same way.

The instrument itself does not prescribe penalties. However, failing to correctly classify a client under the modified section 761G can lead to breaches of the underlying provisions of the Corporations Act. For example:

• If an insurer treats a client as wholesale for a product that is actually an incidental product (i.e. does not give a PDS when required), it may contravene section 1012B (obligation to give PDS before providing a financial product) or section 1015C (defective disclosure). These are civil penalty provisions with maximum penalties currently up to the greater of $15 million, three times the benefit, or 10% of annual turnover (for bodies corporate).
• If the insurer fails to provide an FSG or other retail disclosure under Part 7.7, it may contravene section 941C or 942C, which carry similar penalties.
• If the insurer provides personal advice about the incidental product without complying with the best interests duty (s961B) - which continues to apply due to the carve-out - it may face civil penalties and compensatory orders.
• ASIC can issue infringement notices, seek court orders for remediation, or ban individuals involved.

Conversely, if an insurer incorrectly treats a client as retail for a product that should be wholesale (e.g. by giving a PDS when not required), there is no penalty for over‑disclosure, though it may confuse the client or lead to unintended contractual rights.

ASIC can also take enforcement action for false or misleading representations about the client’s classification or the nature of the product (s1041H, s12DA ASIC Act).

The instrument operates by modifying section 761G of the Corporations Act. It does not amend that section permanently; it is a legislative instrument that overrides the Act for its duration (until 16 August 2030). The modification is limited to the application of Parts 7.6 (except Divisions 4 and 8), 7.7, 7.8, 7.8A and 7.9. Other provisions of the Corporations Act remain unaffected. In particular:

• Section 761G continues to apply in its original form for all other purposes, such as determining whether a person is a retail client for the purposes of the licensing provisions (e.g. s911A - AFS licence requirement) or the hawking prohibitions (s992A). The instrument explicitly excludes Divisions 4 and 8 of Part 7.6, and does not mention other Parts. Therefore, for matters such as the ban on unsolicited contact with retail clients (s736, s992AA), the original section 761G applies.

• The instrument cross-references subsections 764A(1A) and (1B), which define when a contract of insurance provides a “kind of cover” and when it provides a kind of cover in relation to two or more kinds of assets. Those subsections are relevant to identifying whether the contract genuinely includes multiple general insurance products, as required by condition (a) of the incidental product definition. An insurer should ensure that the wholesale product and the incidental product are distinct kinds of cover within the meaning of s764A.

• The instrument may interact with ASIC’s other legislative instruments, such as the ASIC Corporations (Replacement Product Disclosure Statement) Instrument or class orders for specific products. However, none are mentioned in the source.

• State and territory insurance law is not directly affected, but the classification may affect the application of state-based dispute resolution or premium taxes.

• The instrument does not affect the operation of the Insurance Contracts Act 1984 (Cth), which contains its own disclosure and duty of utmost good faith requirements for all insurance contracts regardless of retail/wholesale classification. Those continue to apply.

• The instrument is made under paragraphs 926A(2)(c), 951B(1)(c), 992B(1)(c), 994L(2)(c) and 1020F(1)(c). These are regulation‑making powers that allow ASIC to modify the operation of the Act. The instrument is therefore subordinate to the Act and must be read consistently with it.

The instrument was originally made on 15 August 2022 and registered on the Federal Register of Legislation on the same day as F2022L01069. It commenced on 16 August 2022. The original text included a section 2 (likely a provision about commencement or name) but that section was repealed by operation of section 48D of the Legislation Act 2003, which automatically removes such provisions from compiled versions after a certain period.

The only substantive amendment recorded in the compilation is the ASIC Corporations (Amendment) Instrument 2025/456 (F2025L00891), registered on 31 July 2025 and commenced on 1 August 2025. That amendment changed section 6 (the repeal clause). Originally, section 6 likely set a repeal date of 16 August 2025 (the standard 3‑year sunset for ASIC instruments). The amendment extended the repeal date to “the start of 16 August 2030”. This gives the instrument a further five years of operation. The reason for extension is not stated in the source but is consistent with a policy decision that the incidental retail cover issue remains relevant and the regime should continue.

No other provisions were amended. The instrument remains in its current form with the extended sunset. Amendment history endnote 4 shows only two entries: section 2 repealed and section 6 amended. No other provisions have been added, substituted, or repealed. This suggests the instrument has been stable and ASIC saw no need to modify the definition or the carve-out divisions.

It is possible that future amendments will be made, especially if case law clarifies the meaning of “incidental” or “separate decision or election”, or if industry practice calls for adjustments. The 2030 sunset provides a natural review point.

The source does not report any litigation involving this instrument. As a legislative instrument that modifies section 761G, it is not directly litigated often; disputes would likely arise in the context of broader proceedings about whether a client was properly classified as retail or wholesale, or whether an insurer breached disclosure obligations. No reported cases are cited in the instrument or its endnotes.

Given the instrument’s niche application, litigation is expected to be rare. However, potential grounds for future dispute include:

• Whether a particular product is “incidental” to the wholesale product. Fact‑intensive and may turn on the relative value, purpose, and typical industry expectations.

• Whether there was a “separate decision or election”. If an insurer claims the cover was automatic but the insured can show they were given a choice (even implicitly), the condition fails. Brokers and insurers need clear documentation.

• Whether the issuer offers the first product as a standalone product on the same terms. If the insurer sells the same cover to other clients with the same policy wording, even to a different class of clients, the condition may be breached.

• The scope of “no separate premium”. Insurers often allocate premiums internally for actuarial purposes; the condition looks at whether a separate premium is payable by the person acquiring the wholesale product. An allocation in the policy schedule that the insured must pay could be problematic.

Given the lack of case law, there is uncertainty. ASIC may provide informal guidance, but the instrument text is the primary source of law.

Several traps in the instrument can catch unwary compliance officers and insurers:

1. The carve‑out of Divisions 4 and 8 is often overlooked. Many practitioners assume that if a product is classified as wholesale under the instrument, all retail obligations vanish. But for advice (Division 4) and dispute resolution (Division 8), the test is the unmodified section 761G. So an insurer must still handle complaints under the retail timeframe and have internal dispute resolution procedures for that product, and any personal advice given about it must comply with the best interests duty. This creates a dual regime within the same policy: the incidental product may be “wholesale” for disclosure but “retail” for advice and complaints.

2. The definition is cumulative and strict. A single failure - e.g. the insurer offers the cover as a standalone product on the same terms in a different channel - breaks the definition. There is no materiality threshold. Even if the standalone product is rarely sold, the condition is not met.

3. “No separate decision or election” is a high bar. If the insured’s broker negotiates inclusion of the cover, that is likely an election. If the standard policy wording includes the cover as a default but the insured can opt out, that may still involve a decision (the opt‑out itself could be a decision, but the wording is “no separate decision or election” for inclusion; the mere absence of rejection might suffice if the cover is auto‑included without any opportunity to decline). The safer approach is to ensure the cover is included as a non‑negotiable part of the wholesale package, with no ability for the insured to choose its inclusion, removal, or scope.

4. Standalone on “the same terms” - if the insurer offers the same product to other customers with the same wording but with a different premium, that is still “on the same terms” for the non‑price aspects. The condition looks at the terms of the product, not the price. However, price could be part of the terms; it’s unclear. It leaves room for argument.

5. The wholesale product must itself be provided to the person as a wholesale client. The insurer must verify that the main cover meets one of the wholesale tests under section 761G (e.g. product value, professional investor, subsection (5) without the incidental product exclusion). If the main cover is misclassified as wholesale, the whole incidental product analysis collapses.

6. Repeal on 16 August 2030. The instrument is temporary. Any compliance systems built around it must include a transition plan for when it lapses. If not renewed, the law reverts to the original section 761G. Products structured to rely on the incidental product definition may become non‑compliant.

7. No separate premium - beware of internal allocation. Even if the insurer does not charge a separate line item, a bundled premium that is higher than the standalone price for the wholesale product could be seen as including an implicit premium. The condition is about “separate premium payable”. If the premium is not itemised, it is likely safe. But any mention in the policy schedule of a premium for the incidental cover, even if zero, could be interpreted as payable.

To rely on the instrument and treat an incidental product as wholesale (subject to the carve‑outs), an insurer should take the following steps:

1. Identify packaged products: List all general insurance contracts that bundle two or more kinds of cover where one cover is provided to a wholesale client. For each, determine whether the secondary cover(s) could be incidental.

2. Document the analysis for each bundled cover: Prepare a written assessment confirming each of the five conditions:

   • (a) The wholesale product is provided to the person as a wholesale client (specify which test applies).
   • (b) The first product is incidental to the wholesale product (explain why it is subordinate, using objective factors such as relative premium, risk value, purpose).
   • (c) There has been no separate decision or election by the person - this requires that the cover is automatically included without any opt‑in, selection, or negotiation. Document that the insured did not decide to include it; it is a standard feature of the package.
   • (d) The issuer does not offer the first product as a standalone product on the same terms. Review all channels (direct, intermediated, online, etc.) and confirm that the same product wording is not sold separately. If it is, consider withdrawing that offering or changing the terms (e.g. different limits or exclusions) to avoid it being “on the same terms”.
   • (e) No separate premium is payable - ensure that the policy document does not itemise a premium solely for the incidental cover. The total premium should be allocated across the whole package without attribution to the incidental cover.

3. Maintain records of the above analysis, including evidence of product design, underwriting guidelines, and communications with insureds or brokers showing that no election was given.

4. Implement system flags: In policy administration and compliance systems, tag products that rely on the incidental product classification. Ensure that for those products, the relevant disclosure and conduct obligations for Parts 7.7, 7.8, 7.9 are not applied, but that the obligations under Division 4 (advice) and Division 8 (dispute resolution) of Part 7.6 are applied as if the client is retail. This may require separate compliance paths within the same policy.

5. Train staff: Underwriters, claims handlers, complaints officers, and legal/compliance teams should know the definition and the implications. Complaints handlers must treat the incidental cover as retail for dispute resolution purposes even if the main cover is wholesale.

6. Monitor changes: The instrument may be amended or replaced before its 2030 expiry. Subscribe to ASIC updates. If the instrument is not renewed, transition existing packaged policies to either comply with the default retail classification or restructure so that the incidental cover meets a wholesale test independently (e.g. by product value or small business turnover).

7. Review existing policies: For policies issued before the instrument commenced (16 August 2022), the instrument applies to any relevant acts or omissions after that date. Insurers should audit historical classifications and correct any that were incorrectly treated as wholesale under the subsection (5)(b) test before the instrument existed.

8. Seek legal advice on borderline cases, especially where the definition of “incidental” is ambiguous or where the product might be offered as a standalone in overseas markets (if the issuer is global). The instrument applies to Australian law only.

By adhering to these steps, an insurer can confidently rely on the instrument to reduce compliance burden for genuinely incidental cover, while avoiding the traps that could lead to regulatory action.