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Committee cracks code as pressure grows on insurers

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The latest General Insurance Code of Practice review addresses many areas in which insurers have faced criticism, particularly dealing with vulnerable consumers, but whether it goes far enough remains to be seen, as a raft of inquiries and reviews put financial services under scrutiny.

The release of the code review’s final report comes as the Hayne royal commission spotlights cases of consumers being poorly treated by banks and financial advisers. Insurers will have their turn at the hearings in September.

A range of other reviews and legislative changes are also under way.

Revenue and Financial Services Minister Kelly O’Dwyer noted earlier this year that the first version of the insurance code, introduced in the mid-1990s, was among the first of its kind in Australia – something for which the industry is not given enough credit.

Later versions have introduced plain language, tackled issues related to natural disasters and improved expectations for industry standards.

Insurance Council of Australia (ICA) CEO Rob Whelan says the industry has taken great strides in this fifth code review, which began last year.

“As it progressed, its focus widened to anticipate regulatory developments affecting the industry, as well as to address changing community needs and expectations,” he says in the introduction to the final report. “A strong code provides confidence to consumers and trust in the industry.”

ICA will for the first time seek approval for the code from the Australian Securities and Investments Commission (ASIC), giving it extra status through regulatory endorsement.

Changes needed to gain approval mean the Code Governance Committee will be able to report systemic breaches and serious misconduct to ASIC.

But ICA says enforceability does not require incorporating the code into customer contracts.

The recommendations introduce new layers to the code in the form of standards and guidance in areas such as mental health, while in cases of family violence guidance is accompanied by a new code obligation for insurers to have policies in place.

In the area of product design and distribution, the report is cautious about introducing conflicts or inconsistencies between the code and proposed laws Treasury is considering, particularly in the contentious area of add-on insurance.

“There is limited consumer benefit in repeating in the code obligations that will be contained in law, because this will cause operational inefficiencies and duplication of costs,” it says.

The report says that in the meantime the code should incorporate non-mandatory best-practice guidance for products sold through motor dealers, which could be updated as necessary.

Making third-party sellers become code subscribers in their own right would be impractical, it says. But revisions would make clear that anyone operating under an insurer’s licence are subject to code standards. Changes would also include obligations to improve insurer oversight.

The review backs showing previous-year premiums on home cover policies, but steps aside on component pricing, noting Treasury has been tasked with exploring reforms.

Financial Rights Legal Centre Policy and Advocacy Officer Drew MacRae says the final report is comprehensive and includes important measures in areas such as hardship, mental health and investigation standards.

“Overall, we are pretty pleased with the report,” he told insuranceNEWS.com.au. “They have taken some welcome steps that are well overdue.”

But he says there are missed opportunities to improve the two-step complaints process, and the code should be part of customer contracts. There should also be stronger measures included immediately around third-party providers.

“From our perspective, we would say get ahead of the game and don’t rely on the regulators to tell you what to do,” he says. “The context is that the royal commission is heading into hearings about general insurance. Insurers need to make sure in a substantive way they look like they are doing something to address some of the problems.”

The next stage of the code review process involves turning the report recommendations into the final version. Feedback from former ASIC GM Phil Khoury, who was appointed last year to provide independent oversight for the review, will be taken into account.

Draft guidance and standards will also be refined before the code is released in November, to reflect ongoing work by ASIC and legislative developments.

Mr Whelan says the significant revisions do not preclude further changes as required.

“The industry does not think of the code as a static document, but rather as a ‘living’ document subject to ongoing improvements to benefit general insurance consumers,” he says.

ASIC requires codes to be revisited every three years, and ICA says the clock starts ticking on the next comprehensive review as soon as the transition period for the new version begins.

In the meantime, this version of the code will face plenty of scrutiny as the insurance industry aims to demonstrate it can be trusted with self-regulation and work co-operatively to improve consumer outcomes.