Introduction

Australian insurance businesses need an Australian Financial Services Licence (AFSL) where they provide a financial service such as advice, dealing, or claims handling and settling. An AFSL strategy should reflect the business’s products, services, distribution arrangements, client types, and plans for growth.

Licensing may involve an independent AFSL, appointment as an authorised representative of another licensee, or applicable exemptions and relief, including ASIC Corporations (Basic Deposit and General Insurance Product Distribution) Instrument 2025/520 (‘ASIC Instrument 2025/520’). This article explains how insurers, brokers, underwriting agencies, distributors, InsurTech businesses, and claims management providers can assess authorisations, compliance requirements, and the distinction between AFSL obligations administered by the Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA) authorisation for insurance business.

When Do Insurance Businesses Need an AFSL?

Understanding AFSL Requirements Under the Corporations Act 2001 (Cth)

Running a financial services business generally requires an AFSL. Under Section 911A of the Corporations Act 2001 (Cth) (‘Corporations Act’), a business providing financial services to clients must be authorised under an AFSL unless an exemption applies. Section 766A of the Corporations Act identifies activities treated as a financial service.

Activities that may require an AFSL include:

• Providing financial product advice, including recommendations about insurance products.
• Dealing in a financial product.
• Providing claims handling and settling services.

Claims handling and settling services have been regulated under the AFSL regime since 1 January 2022. These services can include:

• Assisting with a claim.
• Assessing an insurer’s liability.
• Deciding whether to accept or reject a claim.
• Quantifying liability.
• Offering to settle a claim.

How Products, Services and Distribution Arrangements Influence Licensing

The products offered and the services performed by an insurance business affect its licensing requirements. Financial products include life insurance and general insurance, while private health insurance is dealt with under the Private Health Insurance Act 2007 (Cth) (‘Private Health Insurance Act’) rather than treated as an AFSL product for this licensing strategy.

The business model also matters. A broker, underwriting agency, distributor, InsurTech business, or claims management provider may perform different financial services, such as personal advice, dealing, or claims handling. Those activities, together with the distribution arrangement, determine whether the business needs its own AFSL, operates as an authorised representative, or relies on an available exemption.

Distinguishing an AFSL from APRA Authorisation

An AFSL authorises financial services such as advice, dealing, or claims handling. It regulates the services provided in connection with financial products, including life insurance and general insurance.

APRA authorisation addresses a different activity. Under the Insurance Act 1973 (Cth) (‘Insurance Act’), a business carrying on insurance business by undertaking liability by way of insurance requires proper authority from APRA. The definition includes liability connected with loss or damage, subject to stated exclusions such as life insurance, health insurance, and funeral benefits.

Which AFSL Licensing Structure Is Right for an Insurance Business?

Once an insurance business has identified the financial services it provides, it can generally choose between three structures: holding its own AFSL, operating as an authorised representative of another licensee, or distributing products under ASIC relief. The right choice depends on the business model, the level of control required and the compliance responsibility the business is prepared to take on.

Obtaining an Independent AFSL versus Operating as an Authorised Representative

An insurance business can hold its own AFSL or provide a financial service as an authorised representative of an existing AFS licensee. Under Section 916A of the Corporations Act, an authorised representative operates under the appointment of that licensee.

An independent AFSL gives the business direct responsibility for its licensing obligations, compliance arrangements and operational decisions, so businesses assessing this structure can speak with insurance AFSL lawyers and licensing advisers.

Operating as an authorised representative can be faster and less costly to establish, because the licensee holds the AFSL and is responsible for its representatives’ conduct under Division 6 of Part 7.6 of the Corporations Act. However, the business can only provide the services covered by the licensee’s authorisation, and it depends on the licensee’s appointment continuing.

Relying on Applicable Exemptions and ASIC Relief

Certain exemptions may affect whether an insurance business needs an independent AFSL or an authorised representative appointment. Under ASIC Instrument 2025/520, eligible distributors may deal in specified basic deposit, general insurance or bundled consumer credit insurance products without being appointed as authorised representatives.

The distributor must act under a licensee’s written authorisation, and the specified conditions must be met. The licensee must also take reasonable steps to ensure retail clients receive information about its dispute resolution system and, for relevant insurance products, written information about whom the distributor acts for and any remuneration or benefits. The relief does not cover financial product advice or remove the licensee’s consumer protection obligations under the Corporations Act. The instrument is repealed at the start of 1 October 2030.

Key Considerations for Choosing a Licensing Structure

The appropriate licensing structure depends on the business model, the financial service provided and the level of control the business needs over its operations. Key considerations include:

• Regulatory responsibility: whether the business will manage its own AFSL compliance or operate under another licensee.
• Costs: the financial effect of maintaining an independent licence, an authorised representative arrangement or relevant relief.
• Operational control: the business’s ability to control its services, distribution arrangements and future expansion.

The structure should reflect current operations and anticipated growth, including changes to products, services or distribution arrangements.

How Should Australian Insurance Businesses Determine Their AFSL Authorisations?

Authorisations for Insurance Advice Dealing Distribution and Claims Handling

An AFSL should reflect each financial service provided by the business, such as financial product advice, dealing, or claims handling and settling services.

An insurance business must hold the appropriate AFSL authorisation for each of these services, including claims handling and settling services under Section 766G of the Corporations Act.

Distinguishing General Insurance Life Insurance and Client Types

The required authorisation also depends on the insurance product involved. Financial products include general insurance and life insurance, so an insurance broker or other financial service provider should identify the product types covered by its services before selecting its AFSL authorisations.

The client classification also affects the authorisation structure. A business should identify whether it provides services to retail clients, wholesale clients, or both. These classifications should match the business model, the products offered, the advice or dealing services provided, and the relevant compliance arrangements.

What Should an Insurance AFSL Application Include?

Demonstrating Organisational Competence and Financial Resources

Under Section 913B of the Corporations Act, ASIC must grant an AFSL application only if it has no reason to believe the applicant is likely to contravene its general obligations under Section 912A, the applicant satisfies the fit and proper person test, and any other prescribed requirements are met. An insurance applicant should therefore show:

• Organisational competence: responsible managers with knowledge and skills relevant to the insurance products and services sought, such as general insurance advice or claims handling, as explained in ASIC Regulatory Guide 105.
• Financial resources: adequate financial resources to provide the proposed services and carry out supervisory arrangements, as set out in Regulatory Guide 166.
• Compliance and risk management: arrangements for monitoring compliance, managing conflicts of interest and supervising representatives or distributors.
• Dispute resolution and compensation: internal dispute resolution procedures, Australian Financial Complaints Authority membership and, for retail clients, adequate compensation arrangements such as professional indemnity insurance under Section 912B.

Applications must be submitted through the ASIC Regulatory Portal. The application should also explain how the applicant will meet its compliance arrangements as an AFS licensee.

Meeting ASIC Assessment Requirements and Common Application Challenges

For insurance applicants, common issues include seeking authorisations that do not match the proposed services (for example, omitting claims handling or the relevant product classes), responsible managers whose experience does not cover the insurance products sought, and gaps in arrangements for supervising representatives or distributors.

The application must provide correct and complete information about the proposed AFS business, including the arrangements supporting its operation.

An incomplete or incorrect application may be returned or refused. ASIC may also request further information, creating delays while the application is assessed. A careful review of the application before submission can help identify missing information or inconsistencies.

When Should an Australian Insurance Business Review Its AFSL Strategy?

Addressing New Insurance Products Expanded Services and Business Restructuring

An insurance business should review its AFSL strategy when it introduces new insurance products, expands its financial services, changes distribution arrangements, or restructures its business. These changes may affect the business’s AFSL, authorisations, compliance arrangements, or relationship with an authorised representative or licensee.

The review should assess whether the licensing structure remains suitable for current operations and planned business growth. This includes checking whether the business:

• provides advice;
• deals in financial products; or
• provides claims handling and settling services.

Determining When an AFSL Variation or Additional Authorisation is Required

An insurance business may need an AFSL variation under Section 914A of the Corporations Act when its activities change beyond the scope of its existing authorisations. An additional authorisation may also be required where the business begins providing a financial service not already covered by its AFSL.

Conclusion

An effective AFSL strategy should reflect an insurance business’s products, services, distribution arrangements and client types. Choosing between an independent AFSL, an authorised representative arrangement or available relief, while separating AFSL obligations from APRA authorisation, helps the business manage compliance as operations and growth plans change.

For support with that process, contact AFSL strategy and licensing support for insurance businesses from AFSL House’s lawyers. Its team can assist insurance businesses with AFSL applications, authorisations and variations so the licensing structure fits the business model.

Frequently Asked Questions

Disclaimer: All information provided in this article is strictly general in nature and is not intended to be, nor should it be relied upon as, legal advice.