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Code breaches may trigger tougher response after Hayne

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Insurers that breach the next version of the General Insurance Code of Practice may be dealt with more severely after Commissioner Kenneth Hayne criticised the current approach and proposed extended sanction powers.

The royal commissioner’s final report says evidence indicated sanctions powers had not been used because the code governance committee could only impose penalties when an insurer had failed to correct a breach.

“In my view the sanctions power in the general and life insurance codes of practice should not be limited in this way,” Commissioner Hayne says. He proposes an amendment to section 13.11 of the code to further empower the committee to take action on breaches.

The Insurance Council of Australia (ICA) is working on its latest update to the code of practice after last year releasing a report on proposed changes. The next version is due for release within months.

The royal commission also proposed making parts of industry codes enforceable by law, but has given ICA until mid-2021 to take all the necessary steps to put in place “enforceable code provisions”.

Commissioner Hayne says industry self-regulation carries a number of limitations and difficulties, and some code provision conventions should constitute a breach of the law.

“In the insurance context, the provisions to be picked up and applied are those that govern the terms of the contract made, or to be made between the insurer and the policyholder,” he said.

ICA has already flagged that the next version of the code will include a greater focus on customer service, financial hardship and sanctions for code breaches.

Spokesman Campbell Fuller told insuranceNEWS.com.au today that ICA and its members “are examining the royal commission’s recommendations and will consider the implications they may hold for the code and insurance contracts”.

Financial Rights Legal Centre Policy and Advocacy Officer Drew MacRae says the recommendation on sanctions is positive, although it remains to be seen what range of penalties will be proposed, with industries generally reluctant to impose fines.

“I would hope that all the insurance codes of practice provide a full toolbox of sanctions and powers to their compliance committees,” he told insuranceNEWS.com.au.

The move to improve the legal enforceability of codes is also welcomed by the legal centre, but Mr MacRae says the lack of a recommendation to make the insurance code a part of the contract with consumers is “disappointing”.

The code governance committee told the royal commission that since July 2014 it has investigated 33 code breaches, while subscribers had conceded breaches during the course of an investigation on a further 689 occasions and there were 13,000 self-reported breaches.

“Despite this, the committee had never exercised its powers to impose sanctions in response to those breaches,” Commissioner Hayne said.

Counsel Assisting Rowena Orr questioned ICA CEO Rob Whelan during the hearings over the merit of using sanctions as a deterrent and denunciation of conduct that resulted in a breach.