Tab 2 of 6 · The PDS and the TMD
The PDS tells you what the policy does; the TMD says who it was built for
A product disclosure statement (PDS) is the document that sets out a policy’s benefits, risks, costs and terms, and general insurance is one of the products that needs one. A target market determination (TMD) is a separate written document in which the insurer describes the class of consumers the product is designed for, and the conditions on how it is sold.
Side by side
Two documents, compared
| Question | Product disclosure statement | Target market determination |
|---|---|---|
| Where the rule is | Part 7.9 of the Corporations Act; section 1013D sets the main content | Part 7.8A of the Corporations Act, explained in ASIC’s Regulatory Guide 274 |
| What it describes | The product: what a person would reasonably need to decide, as a retail client, whether to acquire it | The people: the class of consumers that makes up the target market, plus matters about distribution and review |
| Who it is written for | The person deciding whether to buy | ASIC calls it a reference point for distributors, and says its purpose is to drive discipline in how products are designed |
| Where to find it | Moneysmart suggests downloading it to understand what a policy covers | It must be available to the public free of charge before the product is distributed |
What a PDS must contain
Section 1013D of the Corporations Act lists the statements and information a PDS must include, to the extent a person would reasonably need them to decide whether to acquire the product as a retail client. Read as a checklist, it is a useful map of any home, contents or car PDS:
- the name and contact details of the issuer (the insurer);
- any significant benefits, and when and how they are provided;
- any significant risks of holding the product;
- the cost of the product, and any amounts payable after you acquire it and when;
- any other significant characteristics or features, and the rights, terms, conditions and obligations attached;
- the dispute resolution system that covers complaints, and how to use it;
- general information about any significant tax implications;
- any cooling-off regime that applies, whether set by law or otherwise;
- how to get any other information the insurer makes available about the product.
The same section says that amounts disclosed for benefits, costs and commissions are to be stated in dollars, unless the regulations say otherwise.
In a home policy, the “significant risks” and “terms and conditions” lines are where exclusions live. Moneysmart’s examples of what a home policy may exclude include damage caused by the sea, smoke, landslides or power failures, and it notes that even where flood is included, damage to some parts of a house may not be. Those are the lines to read twice.
What a TMD must contain
ASIC’s Regulatory Guide 274 sets out the content requirements from section 994B(5). A TMD must:
- be in writing;
- describe the class of consumers that comprises the target market;
- specify any conditions and restrictions on distribution;
- specify the events and circumstances that would suggest the TMD is no longer appropriate (review triggers);
- specify reasonable maximum review periods;
- specify when distributors should report the number of complaints about the product; and
- specify the other information the insurer needs to spot that the TMD may no longer be appropriate, who should provide it and how often.
It must also meet what ASIC calls the appropriateness requirements: it must be reasonable to conclude that a consumer sold the product under the distribution conditions would likely be in the target market, and that for a consumer in the target market the product would likely be consistent with their likely objectives, financial situation and needs. ASIC adds that these requirements are objective and do not require the insurer to know about individual consumers.
The obligations reach the seller as well as the insurer. A distributor generally must not distribute a product unless a TMD has been made for it, and must take reasonable steps so that its distribution is consistent with the TMD.
How the two meet the buyer
The TMD describes a class of consumers, not any one buyer. Still, the target market turns up in the law that governs what you tell an insurer.
For a consumer insurance contract (insurance taken out wholly or predominantly for personal, domestic or household purposes), section 20B of the Insurance Contracts Act says that “an insured has a duty to take reasonable care not to make a misrepresentation to the insurer before the relevant contract of insurance is entered into”. In deciding whether reasonable care was taken, the matters that may be considered include the type of contract and its target market, how clear and specific the insurer’s questions were, and whether the contract was new or a renewal. The Act also says a person is not taken to have made a misrepresentation merely because they failed to answer a question.
Insurers that have adopted the General Insurance Code of Practice add a commitment of their own: a publicly available policy, published on their website, on how they develop and distribute products for appropriate target markets.
Renewals count as new
ASIC’s guide notes that many general insurance policies are offered for renewal each year and that consumers enter into a new contract at each renewal, naming policies that cover loss or damage to motor vehicles and home buildings among them.
So each renewal is a fresh contract, and the Code’s renewal commitments (for policies that renew automatically, a reminder to check the sum insured; for home and car policies bought directly, last year’s premium beside this year’s) sit alongside it. See the Code tab.