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Cracking the code: another step forward

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The wide-ranging fifth review of the General Insurance Code of Practice needs to show the industry can meet higher community and regulatory expectations amid an ever-sharper focus on financial sector standards and behaviour.

The Insurance Council of Australia’s (ICA) interim report on its review sets out eight priority proposals and another 11 themes for discussion, as it suggests new areas for inclusion and improvements to current standards.

“It’s vital we keep checking to see if our code measures up, and be brave enough to change it where it should be improved,” ICA CEO Rob Whelan said when announcing the review in February.

The code was introduced in 1994 and extensively rewritten in the most recent plain-English version, which took effect on July 1 2014, with a 12-month transition period.

That review, which started in 2012, responded to consumer frustrations arising from a series of natural catastrophes in previous years.

The current review sharpens focus on areas where the industry has recently drawn fire, including treatment of vulnerable consumers, inadequate disclosure, problems with add-on insurance and issues related to investigations and other service suppliers.

ICA has reviewed a range of submissions, including from consumer groups, and proposes enhancing the code with a new section on vulnerable consumers.

This would include guidance on best-practice mental health principles, recognising and responding to instances of family violence, and stronger standards on financial hardship.

“While we do not expect call centre staff to be counsellors or advisers, they should recognise when, for example, someone requires an interpreter, or how to identify when a customer’s issue requires escalation to someone equipped to respond appropriately,” it says.

ICA says it continues to work with family violence experts on complex legal issues that have been raised, while the industry is also working on matters related to mental health.

Proposals suggest the code should provide guidance on best-practice disclosure and on product design and distribution principles, including for add-on insurance, which has been on the regulatory agenda.

ICA says the code should strengthen standards relating to third-party distributors and service suppliers, and set out mandatory standards for investigations.

The updated code should also meet requirements for Australian Securities and Investments Commission approval, but ICA continues to grapple with the issue of remedies and sanctions.

The Insurance Council of New Zealand’s code allows a fine of up to $NZ100,000 ($90,590) for unresolved significant breaches, while an offender can also be reprimanded or expelled from membership.

“The ICA board could determine whether it wanted to hold the same power, and the basis on which it would require fines to be paid,” the interim report says, while calling for further feedback.

The current document says the Code Government Committee may require a compliance audit, rectification steps, corrective advertising or publication of non compliance, effectively giving it the option to publicly name and shame an insurer that breaches the standards.

The report says the code needs to be flexible, rather than becoming a narrow set of “prescriptive service standards” that could also restrict competition and innovation.

It asks for responses on more than 40 questions about the eight key proposals, and highlights at least another 40 discussion points on additional code review themes.

Some issues touched on in the code are also part of other reviews and processes under way, such as work to improve disclosure and product comparability.

“ICA views the purpose of the code as establishing valuable principles and standards of industry practice for the benefit of consumers,” it says. “However, ICA does not consider the code to be a catch-all for every issue raised in relation to general insurance.”

Submissions on the interim report are due by January 8, but a long road remains before an updated code is produced and comes into force.

ICA expects to publish a final report in May. An independent oversight report will be released in the middle of next year and the revised code will follow that, with an “appropriate” transition.

Mr Whelan told an industry conference last month he has never seen regulators so active and assertive, while expectations on the industry are continuing to change.

“Much of the focus in the industry is now on providing demonstrable value for the customer, and making the entire process of insurance faster, better, easier and simpler,” he said. “To future-proof the industry, we must look to our core behaviours, values and culture. Actions and deeds count.”

The code goes to the heart of the insurance industry’s social licence to operate. If the management of its own affairs falls short, it can expect more inquiries and increased intervention.