No cover: 31,000 breaches of insurance code but no sanctions
The peak committee governing the self-regulated general insurance industry says that while it has recorded 31,000 breaches of the industry code it has not sanctioned a single company for them.
The gap in regulation covering companies that sell general insurance products such as home and contents insurance, travel insurance, and car insurance and the view of peak body the Industry Council of Australia came under the spotlight during Friday’s royal commission hearings.
Another peak body, the Financial Services Council, was also quizzed about gaps in regulation of the $44 billion life insurance sector including that claims managers are not covered by rules regarding breach reporting, training of staff and the obligation to act fairly towards customers in claims handling.
Senior counsel assisting the commission Rowena Orr, QC turned to reviewing the industry codes that govern the insurance sector after two weeks of hearings where allegedly unfair practices in the claims handling processes of TAL and Comminsure were put under the spotlight.
It also came after issues with the insurance industry being self-regulated was exposed this week as customers from Suncorp and Youi gave evidence on delays and allegedly low-ball, unfair assessments on claims following natural disasters.
Currently the general insurance industry is not classified as a financial service and therefore is not covered by laws relating to commission bans and that their services are conduct fairly, efficiently and honestly. General insurance contracts are also not covered by unfair contracts legislation.
Currently the general insurance industry is governed by a code of conduct that is administrated by the three-person Code Governance Committee, which includes an industry participant. Since July 2014, the committee has recorded 31,000 breaches of the code.
Insurance Council of Australia chief executive Robert Whelan said the committee had the power to impose sanctions since July 2014.
When asked by counsel assisting the commission how many of those breaches resulted in a sanction, Mr Whelan said: “None.”
“There’s been an increasing compliance mentality within companies. I’m not necessarily convinced that just bringing in sanctions for the sake of it will necessarily have a major impact on the breaches,” Mr Whelan said.
The Financial Services Council chief executive Sally Loane says the life insurance code was in the process of being updated to cover distributors of products, including companies like Freedom Insurance.
He also explained that the ICA was open to having some parts of an insurance contract covered by the unfair contracts legislation but not elements that went to what is covered and how and product design and other elements in the contract relating to consumer rights.
Ms Orr questioned whether this would mean that only ancillary terms in a contract would be covered and not the majority of terms in an insurance contract.
“They are the important terms, the terms that are capable of being unfair,” Mr Orr said.
Mr Whelan said how the industry factored in risk was fundamental to how it priced contracts and such legislation could limit some policies from being issued.
“We need to be very careful about what is acceptable,” Mr Whelan said.
He added that it could also impact whether foreign reinsurers would re-insure Australian insurers. All insurance companies use re-insurers to cover their risk and mean that insurance companies don’t go broke if covering payouts on a natural disaster.
Mr Whelan said the ICA had an open mind about whether insurance contracts should be treated like any other financial services product and accepted that in principle insurance companies should offer a financial service honestly, efficiently and fairly.
The Financial Services Council chief executive Sally Loane also gave evidence about the life insurance code which was brought in 2016. Ms Loane said the code was in the process of being updated to cover distributors of products, including companies like Freedom Insurance.
Ms Loane said the FSC did not necessarily support changing the law so that claims handling officers in life insurance companies were covered by the same rules that financial planners and banks follow including acting in a customer’s best interest, ensuring staff were properly trained and that the company acts honestly, efficiently and fairly towards its customers.
Ms Loane said such a change could have an impact on life insurance companies as they would have to train claims handling staff.
Ms Orr also took Ms Loane to task for being unable to answer a series of questions about the second iteration of the life insurance code, with Ms Loane saying a staff member at the FSC was responsible for that. She did however, say that she believed that new provisions to protect people with mental health issues would likely be included in the second edition of the insurance code.
Ms Loane was also asked about $6 billion in commissions that were paid to financial advisers for selling life insurance products to customers. In 2015, a report into the sector recommended that maximum commissions be capped at 70 per cent of the premium. Previously commissions could be as high as 130 per cent of premiums.
Senior Counsel assisting the commission Rowena Orr.
Source: Read Full Article