Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p71
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 71/101)
Character Range: 227141–230207

IFRS 17:

          (a) this could be problematic due to the potential interface between, for example, the public health system and the medical nature of many claims that might be the subject of arrangements that would be accounted for as insurance contracts; and

          (b) the relevant types of excluded activities should be able to be identified based on applying other proposed indicators.

Fault-based nature of an arrangement

     BC230        In respect of many classes of risk, private sector insurers attribute fault in determining whether claims are valid or the amount of those claims. For example, a policyholder that is negligent may receive a lower claim benefit than a policyholder who is not at fault, which is designed to avoid moral hazard issues. Accordingly, it could be argued that fault-based arrangements are more likely to result in insurance activities.

     BC231        The Boards noted that public sector arrangements vary across jurisdictions. For example, some of the Australian Compulsory Third Party motor insurance arrangements for non-serious injury are fault-based, while all the Compulsory Third Party motor insurance arrangements that include serious injury are no-fault arrangements. Currently, Australian stakeholders' application of either AASB 4 and AASB 1023 or AASB 137 has not reflected the fault status of the arrangements. That is, some public sector entities operating no-fault arrangements are applying AASB 4 and AASB 1023, while others have been applying AASB 137. However, the Boards are not aware of any public sector entities operating fault-based arrangements that are applying AASB 137.

     BC232        The Boards also observed that, while no-fault arrangements are more prevalent in the public sector, many classes of risk covered by for-profit private sector insurers do not involve attributing fault in determining whether claims are valid or the amount of those claims. For example, insurance contracts for risks such as health/disease and longevity are typically no-fault contracts.

Boards' proposal on Fault-based nature of arrangement not being an indicator in AASB ED 319/NZASB ED 2022-3

     BC233        Based on the above deliberations, the Boards decided that the no-fault versus fault-based nature of public sector arrangements would not be helpful in indicating whether the arrangements are to be accounted for as insurance contracts and this distinction was not proposed as an indicator.

Relative significance of the indicators

     BC234        The Boards considered whether some indicators should be:

          (a) separately identified as being pre-requisites for applying AASB 17/PBE IFRS 17 (that is, their absence means AASB 17/PBE IFRS 17 would not apply); or

          (b) separately identified as being determinative in applying AASB 17/PBE IFRS 17 (that is, their presence means AASB 17/PBE IFRS 17 would apply); or

          (b) otherwise ranked in some manner based on their significance in determining arrangements that should be accounted for by applying AASB 17/PBE