An Issues Paper released last week by the Insurance Council of Australia (ICA) sets out a framework for a comprehensive review of many aspects of the general insurance industry.
The Paper considers the regulatory framework of insurance as a whole, and raises a range of practical issues calling for submissions, highlighting the need for better promotion of the General Insurance Code of Practice and customers’ rights under insurance policies, and more effective disclosure practices.
The terms of the General Insurance Code of Practice (Code) provide for it to be regularly reviewed by an independent party with a view to recommending improvements to the Code as a simple, clear and practical self-regulatory scheme, and to improve related insurance practices. The 2012 Independent Review (Review) is being conducted in consultation with the Financial Ombudsman Service (FOS), the ICA, insurers, consumers and business representatives and ASIC.
The Independent Reviewer has released an Issues Paper (Paper) identifying a number of issues and calling for submissions. In conducting the Review, the Code has been benchmarked against the Banking Code of Practice, the Mutual Banking Code of Practice and the NIBA Code of Practice, as well as a selection of international financial services sector codes and Australian non-financial services sector codes.
The Paper notes that the issues it raises have been formulated against a background of recent natural disasters and rapid and significant legal and regulatory change, in a volatile and uncertain market.
Specific issues calling for submission
The issues on which submissions are sought include:
- the Code’s structure and effect - whether it should consist of principles or rules or both, and whether it creates, or should create, enforceable legal rights;
- the Code’s general application - who the Code should apply to (eg all insurers carrying on business in Australia, all insurance industry participants holding an AFSL and/or third party beneficiaries);
- the products covered by the Code - whether the Code should continue to apply to all general insurance products or cease to apply to wholesale products (or apply to wholesale products but differently);
- the Code’s standards - whether standards on certain matters are adequate, whether others are necessary, whether some should be enhanced, and whether new standards (eg for retail product simplification, clear concise and effective disclosure, and unfair contract terms) are required;
- the standard flood definition - whether the standard flood definition approach should be extended by a review of the current appropriateness and adequacy of the terms for prescribed contracts under the Insurance Contracts Act and the terms for retail products under the Corporations Act;
- time limits - whether there should be a time limit on the finalisation of claims once they have been accepted;
- hardship - whether the Code should contain guidelines for dealing with hardship cases, particularly on premium payment, excess and debt collection;
- extraordinary catastrophes or disasters - whether the Code should be able to be varied by the ICA in an extraordinary catastrophe or disaster, whether the Code should require Code participants to have a natural disaster response plan which complies with minimum agreed standards; and
- promotion and education of the Code - whether it is adequately promoted, whether the Code standards on information and education produce sufficient understanding of the Code, standards and insurance in the community, whether the industry’s practices and Code standards could improve customers’ awareness of their rights under their insurance policies.
The Paper does not consider review of the Code in isolation, but takes a practical approach to how it operates in context, discussing the interaction between legislation and other forms of regulation, and calling attention to the need to consider where specific rights and obligations should be addressed - in legislation or in standards. It also addresses the fundamental question of whether the Code is, or should, create enforceable legal obligations.
Of note is the discussion of the need for “clear, concise and effective” disclosure to customers. The Paper outlines what has previously been recommended on this point (both in the National Disaster Insurance Review Report and elsewhere) and steps taken so far to achieve better disclosure. In particular, the Paper asks whether, in the absence of legislation, the Code should contain a “clear, concise and effective” disclosure standard.
The Paper also considers the broader consumer protection context in which the Code operates. It raises issues relating to the fairness standards under the Code in the context of the duty of utmost good faith under the Insurance Contracts Act and available remedies for unfair contract terms, and notes that the relationship between these duties is critical for the development of the industry and the Code.
The Paper provides statistics for (a) the general insurance industry for the period 2009-2012 and (b) for natural disasters over the 2010-2011 and 2011-2012 summers, and considers the role of insurance in community recovery from natural disasters.
Submissions in response to the Issues Paper are due by Friday 30 November 2012. Following public consultations in December 2012 and February 2013, and further consultations with stakeholders, a Report will be prepared and presented to the Board of the ICA for consideration at its May 2013 meeting.