What’s in a name? Quite a lot, say brokers fuming over anonymous penalty
The General Insurance Code Governance Committee is finally showing its enforcement teeth as it uses one of its strongest sanctions to punish an errant insurer for the second time in eight months.
Under the code, a community benefit payment of up to $100,000 can be imposed for significant breaches. It’s a power that’s been available since 2021 but was first used in June last year, when Allianz was hit with a $50,000 penalty.
The code committee warned there was more to come, and sure enough last week another penalty was announced, for major claims and complaints handling failings. This time, the insurer must pay the maximum $100,000.
Strong self-regulation is exactly what’s needed when insurer claims performance – especially after catastrophes – is under unprecedented scrutiny.
But for many, there’s just one problem. Due to the insurer’s “model response”, the committee opted not to name it. This has resulted in a flurry of criticism to insuranceNEWS.com.au’s email and social media inboxes.
Consumer groups and claims intermediaries are, not surprisingly, unimpressed. The Australian Consumers Insurance Lobby has written to the code committee asking it to reconsider an approach it believes could “undermine confidence in the industry and the regulatory framework designed to oversee it”.
But there’s another group equally alarmed – brokers.
NIBA broker of the year for Victoria/Tasmania Abbie Wilson describes the decision not to name the insurer as “disgraceful”.
“At a time we’re screaming for better and fairer transparency, we get this! [The insurer] clearly didn’t co-operate when the clients relied on them [and] needed them the most.”
Another describes the fine alone as “a very weak penalty for failing to do the very thing you promise to do in a contract of good faith”. He adds that “naming the insurer is more than appropriate”.
Many point out the financial penalty alone is almost no penalty at all.
“Oh no, $100,000, I guess the senior execs will have to skip a couple of lunches,” one broker says.
Mooneys Insurance Brokers MD David Mansley says the insurer “should be named, and $100k is an inadequate penalty”.
Mr Mansley tells insuranceNEWS.com.au he believes the reaction from brokers stems from several years’ frustration around insurers’ claims performance.
“I try not to be negative about insurance companies but over the past five years, claims handling has just gotten worse and worse.
“If you name them, there’s some motivation to pull their socks up.”
Tetiana George, CEO of insurtech Curium, makes a similar point, arguing that “regulation only works if incentives are right”.
“The code is being breached tens of thousands of times every year,” she says. “No real consequences. No real change.”
She adds Curium recently worked on a “major project” with an insurer to improve customer communication and remove “thousands of breaches this insurer reports every year”.
She says the project was dropped because there was “no ROI justification”.
“Management decided that thousands of breaches and short-term measures were cheaper than fixing the issue.”
Some on the underwriting side of the industry have chimed in too. Pacific International Insurance chief underwriting officer Bill Konstantinidis says the decision not to name the insurer “just doesn’t pass the pub test”.
“Transparency is key,” he writes on LinkedIn. “As an industry, we have to own our failures. This gives the public a feeling that we are hiding things and that the Code Governance Committee is not for the consumer but a tick-a-box for the regulator.
“As an industry we are bigger than this. What is the point of the code if there aren’t any brand repercussions for the insurer?”
Australian Consumers Insurance Lobby chairman Tyrone Shandiman has warned “continued speculation” over the sanctioned party’s identity could damage other insurers, arguing “transparency would serve everyone better”.
And there’s an issue over consistency too. Allianz executives may feel bruised, having been exposed for an issue that, going by the size of the fine, was half as serious.
Compliance expert Paul Muir is one of the few to speak up for the code committee, arguing the decision to name and shame requires “a balancing of all factors”.
He says naming insurers can result in reputational and financial damage and “an increase in customer abuse directed towards contact centre and customer-facing staff”.
“Clearly, in this instance, the actions of the insurer post-breach [were] determined by the [code committee] as having greater impact in encouraging other insurers to respond as comprehensively and effectively when identifying, reporting and addressing breaches.
“I agree with the [committee’s] approach in this matter.”
The current review of the code could result in the maximum community benefit payment doubling to $200,000. But even that might not be considered a serious deterrent to companies that can make many millions in profit each year.
The code committee may be showing its teeth more often, but many would like them to be a great deal sharper.