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Vulnerability, enforcement and affordability on the table in code review 

It doesn’t seem long since the 2020 General Insurance Code of Practice was released, but since then the industry has dealt with Hayne royal commission repercussions, a pandemic and record-breaking east coast flooding that’s now the focus of a parliamentary inquiry.

The previous code review made 30 recommendations after a lengthy exercise, resulting in an extensively updated and rewritten document. The release of a consultation paper last week shows the current review shapes as equally significant. 

Many of the legislative changes flowing from the Hayne royal commission started after the current code took effect, including the product design and distribution obligation and claims handling becoming a financial service, while other regulatory reforms are still being made. 

“Crucially, the environment in which insurers operate and community expectations of insurers have continued to evolve, particularly in light of the heightened frequency and severity of severe weather events and the impact of the covid-19 pandemic,” the consultation paper says. 

“Consumers’ experience of these events has highlighted the need for insurers to improve practices in areas such as consumer communications (particularly around claims), complaints handling, treatment of vulnerable customers and those in financial hardship, processes for managing third parties and resourcing of key areas.” 

The three-person review panel will deliver a first report by June 30. A second phase, to be completed by the middle of next year, will focus on flood-related topics and refining findings.  

But matters arising during the federal flood inquiry have already been flagged in the consultation paper, which puts forward more than 30 questions for feedback. 

Questions include how the code should promote enhanced responses to policyholders experiencing heightened vulnerability, particularly during a catastrophe. 

It asks about training requirements for employees, distributors and service suppliers, and whether changes to code rules for service suppliers are needed given legislative changes. 

On claims handling, cash settlements are in focus, with input sought on whether, and how, the code should be enhanced to improve understanding and better protect customers.  

The current code sets time frames for providing updates on claim progress and responding to customer enquiries, but those provisions were regularly breached during the 2022 flooding. 

The review asks in what circumstances, if any, the code should allow insurers to vary the time frames, and it asks for feedback on the operation of the code section dealing with complaints. 

The consultation paper also raises affordability issues, noting the Australian Bureau of Statistics has reported insurance prices rose 16.2% last year, the largest annual rise since 2001. 

“Codes of practice do not generally address prices,” it says. “However, given affordability is such a significant community concern, the review panel is interested in what, if anything, the code might do to improve the affordability of premiums, recognising that other mechanisms may be more appropriate for this purpose.”  

Mitigation is on the table, with the paper noting some insurers have developed programs that provide premium discounts in exchange for home resilience actions. 

The panel asks if the code should add provisions encouraging or requiring insurers to respond to consumer mitigation efforts where “appropriate and reasonable”, and how that might be done. 

The current code introduced a community benefit payment of up to $100,000 for severe breaches, in response to criticisms that it previously lacked teeth. But the penalty has never been imposed. 

Governance and compliance is again up for consideration, and is another issue raised during the flood inquiry as MPs have questioned the industry’s self-regulation. 

The consultation paper asks if current sanctions are a sufficient deterrent to misconduct, and how they could be strengthened if necessary. It seeks feedback on the code’s alignment with the Australian Securities and Investments Commission (ASIC) “reportable situations regime”. 

The panel additionally asks if the Code Governance Committee should be able to name subscribers that commit substantial breaches. 

The Insurance Council of Australia has indicated it plans to submit the code to ASIC for approval, and the panel seeks input on which parts of the document could be designated “enforceable code provisions” as part of that process. 

Such decisions would be significant, as those provisions then become financial services law and would be enforced by ASIC rather than the code committee. 

The panel seeks feedback from a broad range of stakeholders and will consider suggestions beyond the questions it has put forward. 

It could still be a long time before reforms are introduced. The Insurance Council will prepare a revised draft code after considering review panel final recommendations. Further consultations could take place as part of the ASIC approval process, and a transition period will be needed for training and updating of systems and processes.  

Whatever the final result, the experiences of the past four years are likely to deliver a document that includes significant changes.