The industry ombudsman says the insurers’ draft code of practice hollows out commitments and undermines oversight, while brokers face a “final chance” to improve remuneration disclosure before risking government intervention.

Australian Financial Complaints Authority submissions on the insurer and broker draft codes highlight the key concerns as the sectors put together finalised documents.

The Insurance Council of Australia’s move to make its code contractually enforceable has resulted in perverse outcomes, AFCA says.

Many important independent review recommendations are unaddressed or inadequately implemented, existing provisions and commitments are diluted or moved into guidance, and many welcome new commitments are weak or lack meaningful oversight because of a hollowing out of governance arrangements.

The ombudsman warns it will make representations “in the strongest terms” to the Australian Securities and Investments Commission and the government if code governance committee changes are to proceed.

“AFCA strongly opposes the proposed changes, as we believe they unnecessarily fetter the discretion of the committee and undermine its independence,” it says.

The insurers’ draft code fails to follow an independent review road map, which considered parliamentary floods inquiry lessons, and does not fully meet the moment, the authority finds.

“The alternative is – as in the superannuation sector – government mandated service standards. We urge insurers to follow the road map and not miss this opportunity to take your industry and your customers forward.”

Related article: Code committee warns of threat to broker self-regulation

On the broking code of practice, AFCA says requiring remuneration disclosure for all policies, for any product and to any client is an essential and overdue reform.

The industry should not avoid the issue any longer, with trust and confidence in its ability to effectively self-regulate critically important.

“Absent a meaningful response to this issue in the code, AFCA will join all the growing calls for a legislative response,” it says. “AFCA believes this is the industry’s final chance to do the right thing on disclosure. If it fails to do so, then there is a compelling case for the government to intervene.”

The submission says other opportunities to enhance the draft code include widening the small business definition and providing concrete claims management commitments.

“The draft code’s current wording remains too general to provide clients with a clear service standard.”

See the submissions here and here.