Home / Analysis / PM’s backflip leaves industry in spotlight… again
4 December 2017
It is only three months since a Senate committee handed down its report on the general insurance industry – one among a plethora of recent reviews.
Yet now the industry is swept up in nothing less than a full-scale royal commission.
The royal commission has emerged from the political battlefield after opposition and crossbench politicians – and some Nationals – put pressure on the Government, and is triggered mainly by concerns over the behaviour of the big four banks and financial planners.
Nevertheless, general insurance has been included along with the broader financial services sector, and again finds itself under scrutiny.
Prime Minister Malcolm Turnbull says the royal commission into the alleged misconduct of Australia’s banks and other financial services entities will deliver an interim report no later than next September, followed within a year by a final report.
Insurers are taking a positive approach despite having to front up again, hoping the end result will improve public confidence in their sector.
The Insurance Council of Australia says in the past six years it has contributed to the Financial System Inquiry, the Senate inquiry, the Northern Australia Insurance Premiums Taskforce, the Henry tax review, the Queensland floods inquiry and three Australian Government Actuary reports.
“The inquiries have concluded that the general insurance industry, which pays more than 97% of claims, does not have systemic issues that need addressing,” CEO Rob Whelan says.
“The general insurance industry is one of the most heavily regulated and scrutinised sectors of the Australian economy, with strong consumer protections.”
The Association of Superannuation Funds of Australia (ASFA) is more critical.
“ASFA is disappointed the Government has included superannuation in the scope of the royal commission,” it says. “A plethora of never-ending inquiries, reviews and regulation is at odds with maintaining a system that is serving Australians tremendously well.”
The Government, which backflipped on the royal commission after previously ruling it out, was forced to bow to pressure from within the coalition. It says the banks in particular have become a political football, and speculation about an inquiry risked undermining confidence in the financial system.
“The only way we can give all Australians a greater degree of assurance about the financial system is through a royal commission,” Mr Turnbull said last week.
“While we don’t relish this decision, nonetheless, we have to act in the national interest, protecting Australians’ economic future, and that’s why we have taken the decision we have.”
The big four banks, possibly fearing a more onerous inquiry if the Government left the running to its political rivals, also reversed position and wrote to Treasurer Scott Morrison to urge an inquiry to clear the air, recommending a widened focus to include insurance and super.
The recent Senate general insurance inquiry made 15 recommendations to improve the sector, including that the Government release its response to the earlier report from the Northern Australia Insurance Premiums Taskforce.
The industry has taken on board many of the criticisms directed its way. The Insurance Council says it is working closely with regulators and consumer representatives on issues that affect customers, including product disclosure and mental health, while an interim report on an improved code of practice is open to community feedback.
Nevertheless, the industry continues to face calls for further action and improvement.
Maurice Blackburn Lawyers Principal Josh Mennen says the royal commission’s 12-month timeframe is too short, while urging it to scrutinise financial advice cross-selling models, which cause conflicts of interest and skewed incentives, plus “dubious systemic issues and work practices” in insurance.
“The royal commission should also look at the insurance industry’s underwriting and claims practices, with a focus on mental health discrimination and harsh and unfair claims assessment tactics,” he says.
The terms of reference, which still need to be finalised, include broader cultural or governance practices, redress for consumers who suffer detriment, adequacy of current laws and policies, and industry self-regulation, including codes of conduct.
The commission is not required to examine matters that might duplicate another inquiry and can exclude matters that might otherwise be within its scope, as the Government aims to keep the mandate manageable.
Other reviews currently affecting insurance include the Australian Competition and Consumer Commission inquiry into northern Australian insurance. The Government is also continuing to consult on details for the new Australian Financial Complaints Authority, due to begin work next July.
National Insurance Brokers Association CEO Dallas Booth says comments at the group’s convention by Australian Securities and Investments Commission Deputy Chairman Peter Kell and General Insurance Lead Ombudsman John Price recognised the good work of brokers.
Fraudulent or “finger in the till” behaviours are isolated, and clients affected in those instances are looked after, he says.
“Brokers are generally doing good work for their clients and there is no evidence of systemic or serious poor advice or poor behaviour,” he told insuranceNEWS.com.au.
“I am very proud of the stories we are able to tell government and regulators and Parliament on behalf of our members.”
IAG, QBE and Suncorp all expressed support for action that ultimately benefits consumers.
“Any measures that arise from the royal commission that deliver improved outcomes for our insurance, banking and superannuation customers are in everyone’s best interest,” Suncorp CEO Michael Cameron said.
“We are fully committed to supporting this inquiry, as we have with all other inquiries the Government has instigated, and will work hard to ensure our contribution is valuable.”
Politicians seem almost powerless to resist calls for inquiries into insurance. This royal commission is just the latest – and no matter what it finds, it most assuredly won’t be the last.
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