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5th October, 2021

What is a TMD?

2021 has and will continue to see a lot of changes for the insurance industry, we wrote in our last newsletter about the coming changes for Income Protection insurance.

The changes we will discuss in this article will be applied across the board in both the general and life insurance industries, this has been brought about by the findings from The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the changes are welcome and will alter the banking and insurance landscape for years to come.

The most current changes which will be effective from 5 October 2021 referred to as the Product Design and Distribution Obligations (DDO) this will require product issuers and distributors to determine the needs of consumers, design products that are suitable for such consumers and distribute products in a more targeted manner. This will stop the offering of products with little to no consumer value and actively prevent miss-selling.

DDO requires insurers to develop, document and make publicly available a Target Market Determination (TMD) for each retail client product offered.

A TMD requires the insurer consider the likely objectives, needs, and financial situation of their target clients as a group when developing their products and any conditions around how the product can be distributed to customers.

In addition to determining a target market the insurer will also have increased requirements regarding the regular review of their TMD’s, record keeping and complaints handling.

For many insurance products (like home and motor) the changes will mostly be limited to insurer’s internal processes and documentation with no real impact on individual consumers. However the change will benefit the market and consumers as a whole by requiring insurers to have more transparent and focused approached when designing and selling retail client based insurance products.

Author: Murray Bruce