Design and distribution obligations

TMDs explained

The Target Market Determination (TMD)

One of the key instruments in reinforcing suitability of products for specific classes of customers is the Target Market Determination (TMD).

Under DDO, product issuers will be required to make publicly available a TMD for each product.  Depending on the type of product, a TMD may be issued for an overall product (more likely for direct-sold life insurance) or for each individual cover type, for example TPD cover or Income protection cover.

The TMD will describe the typical objectives, financial situation and needs of consumers in the target market, describe the product features, and explain why those features are likely to meet consumers’ needs. The TMD will generally also articulate time horizon, risk level, and other relevant suitability criteria. In some cases, a TMD may identify the ‘negative target market’ - those consumers for whom the product is not deemed suitable, although this is not mandatory.

TMD Format

While ASIC does not specify the exact format of a TMD, many insurers, including Zurich, will be reasonably aligned with the standardised templates developed by the Financial Services Council (FSC). Such standardisation should help advisers become more familiar with TMDs more quickly and will help streamline the product comparison process.

Zurich TMDs

Zurich TMDs will be publicly available on the Zurich website and on other online locations. These links will be available in the product PDSs. 

Significant dealings

Distributors will be obliged to report any ‘significant dealings’ in the product to consumers falling outside the defined Target Market. RG 274 - the applicable ASIC Regulatory Guide - does not define ‘significant’ (nor does the Corporations Act) and recognises that its meaning is likely to vary between product types and issuers, depending on:

1.  The proportion of consumers who are not in the target market acquiring the financial product.

2. The actual or potential risk of harm to a consumer including any financial loss;

3. The nature and extent of inconsistency

4. With insurance products, some consideration of premiums or gross income; and

5. The time period during which these dealings took place.

TMD appropriateness

The TMD will also specify any events that suggest the TMD is no longer appropriate - known as ‘review triggers’ - along with the normal schedule of TMD reviews.

Distribution Information

Importantly for distributors, the TMD will also specify when the distributor should provide information about the numbers of complaints to the issuer; and what information distributors must report to the issuer and how frequently, in order to enable the issuer to identify whether the TMD may no longer be appropriate.

What information does Zurich require around significant dealings, complaints, and other distribution events?

While every product provider is likely to have their own requirements, we are committed to standardising processes wherever possible. To this end we are in consultation with a range of industry stakeholders about informational requirements and will provide more clarity once available.

Complaints reporting

Distributors are required to provide information regarding complaints received by the distributor in relation to the product during the reporting period specified in the TMD.  This information needs to be provided within 10 business days after the end of the relevant reporting period.

The relevant reporting period is specified in the TMD.  The general reporting periods are outlined below:

Zurich Financial Services Australia (Zurich) has signed onto Iress’ blockchain-based industry solution for managing its obligations under the Design and Distribution Obligations (DDO) legislation.  Reports may be submitted using the chatbot here. 

Significant dealings reporting

Distributors must notify a product issuer of a significant dealing that is not consistent with the product’s TMD within 10 business days after becoming aware.  Distributors should consult with their compliance team whether a dealing is significant. 

Zurich Financial Services Australia (Zurich) has signed onto Iress’ blockchain-based industry solution for managing its obligations under the Design and Distribution Obligations (DDO) legislation.  Reports may be submitted using the chatbot here.