There’s an old saying: If it ain’t broke, don’t fix it. Few people would argue that the insurance sector in Australia wasn’t broken, but attempts at repair through the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry show mixed results.
“The industry’s concern was that many of the recommendations from the royal commission were strong in concept, but could result in detrimental consumer outcomes if they were implemented as black letter law in the terms that the royal commissioner had written them,” said Insurance Council of Australia (ICA) head of communications and media relations Campbell Fuller.
The industry believes that each proposal required formal regulatory review and a regulatory impact statement before it was enacted so that any negative impact on consumers is properly understood.
“The federal government’s view is that the royal commission served as a de facto regulatory impact process, so the time it would normally take to draft, test and seek feedback can be dramatically curtailed,” said Mr Fuller. “The government made commitments to the public that the recommendations will be in place quickly - and that’s government being seen to do its job.”
Government isn’t listening
The ICA and its members advocated strongly that the government take account of what the industry assesses as the true impact of the legislation on customers. It is also encouraging regulators and Treasury to consider whether the introduction of legislative changes should be delayed to take into account the uncertainty of COVID-19, Australia’s faltering economy and the impact of the summer of natural disasters, which resulted in more than $1.8bn in insurance catastrophe claims.
“Many of these changes have broad industry support and the ICA is working co-operatively with government,” said Mr Fuller. “Insurers are still going to have to adjust their business practices, systems, claims handling processes and review their product disclosure statements to make way for the changes. The test will be, when the review process takes place in several years’ time, what the true impact of this legislation has been.”
The potential flaws in the legislation are concerning. “Insurers have legitimate concerns about what’s been termed ‘unfair contract terms’,” said Mr Fuller. “The legislation as drafted would make every single element of an insurance contract contestable, which creates a lot of doubt. Insurers are going to have to price for that legal uncertainty.”
Devil in the detail
Equally worrisome is the potential impact of new legislation on other business sectors. “The legislation around claims handling as a financial service could capture any service provider to the insurance industry,” said Mr Fuller. “If you are a roofer fixing hail-damage, you could be caught up in claims handling as a financial service.”
General Insurance Code of Practice
Fortuitously, the timing of the royal commission dovetailed with a review of the General Insurance Code of Practice. The review touched on add-on insurance sold through motor dealers, investigation standards, financial hardship and mental health provisions.
“The new code is one of the most significant pieces of work undertaken by the Insurance Council in the past decade. It captures many of those elements and is now being introduced to the insurance industry,” said Mr Fuller. “They have until mid-year to have in place the family hardship provisions. The rest of the code has to be implemented by 1 January 2021.”
Clarity on policy renewals required
Automatic policy renewals also came under the royal commission microscope. “There’s a proposal at the moment that insurers must take responsibility for consumers who used to automatically renew,” said Mr Fuller. “Insurers won’t be allowed automatically to renew a policy.
“Under these rules it is feasible that when a consumer doesn’t respond to emails or ‘phone calls, the insurer presumes they’ve done their part and ends the policy. But the ombudsman, the regulator might just say after a natural disaster “You didn’t try hard enough. Therefore, that policy is still in force and they’ve lost their home and you must pay.” A