The 2012/13 General Insurance Code of Practice Review released on Friday is, for insurers at least, good in some parts and bitterly unpalatable in others.

As expected, independent reviewer Ian Enright has presented the industry’s leaders with a range of recommendations that, if supported by the insurers who control it, would change the code from being a statement of principles to something that would have considerable power and independent influence.

But in suggesting a code with some sensible changes and better definitions as well as a structure that would make the code independent of the insurers, Mr Enright has raced too far ahead of their sensibilities.

Most of his 60 recommendations – the 2009 review had 10 – are underpinned by an organisation he calls the Code Governance Body (CGB), which would take a more dominant role in setting the rules and monitoring the behaviour of signatories.

The CGB would be independent of industry control or influence, with only one industry member up against three independent members and one person representing consumers.

There would also be a sanctions committee to decide suitable punishments for transgressors, made up of three independent members and no insurers; a promotion, education and training committee and a policy committee, both comprising the CGB representatives and “representatives from industry and customers”, the Insurance Council of Australia (ICA), Financial Ombudsman Service (FOS), Australian Securities and Investments Commission (ASIC) and Federal Treasury.

While Mr Enright uses the word “independent” sparingly throughout his 200-page report, it’s clear that’s what he has in mind.

“Code governance emerged as the single most important overarching issue for my review,” he says. “It is essential for the code to be set in a governance framework in which the governance body is independent, expert, informed and resourced. The framework must be visible and accountable.”

He wants the Code Governance Body to work with ICA and code participants to promote the code and be involved in industry education and training; collect and distribute data and commission reports; deal with industry conduct and code breach allegations; and consult with ASIC and Treasury on general insurance policy.

He also sees the CGB having a strong liaison role with ASIC, but most importantly wants it to be “a co-ordinating body as the host and focus of insurance policy forums involving all stakeholders for planned and measured proposals for industry continuous improvement”.

In his 12 months spent consulting with hundreds of people, Mr Enright must have formed an opinion that the industry’s commitment to the code is somewhat flawed, and the governance framework lacking in independence or power.

Certainly he sees advantage in moving power over the code’s future development away from ICA and into a structure where insurers would have less influence.

ICA was not expected to release the Enright review for some months, and its release on Friday came without warning or fanfare.

But it did come accompanied by a statement that fires a pre-emptive shot across the bows of the review, just so no one gets the idea that this is a fait accompli.

While it says it may support the formation of an enhanced and more independent governance body for compliance monitoring and sanctions, it has no intention of giving up its role in governing what the code is and how effective it can be.

Specifically, ICA is responsible for developing industry policy – including the content of the code – and the council also sees itself as “the appropriate framework for industry self-regulation under the code”.

Nor does it want the CGB to take over responsibility for financial literacy programs and staff education and training, saying it already has in place the necessary programs and strategies.

Mr Enright obviously thinks otherwise.

“There was a strong and deep consensus from my consultations, forums and the submissions that, even with the considerable work to date and continuing, ICA, code participants and the Code Governance Body must redouble their resources and efforts in training and education,” he says in his report.

Noting that many people involved with the code don’t understand and implement its “spirit and standards”, he says the education and training being carried out by insurers “is clearly not adequate for its purpose”. 

Much of what Mr Enright proposes for the code is backed up by his summaries on present and future challenges being faced by the insurance industry.

His proposed code is in plain English and it sets out clearly what consumers should be able to expect and the standards the insurers will abide by. But what will be changed in the “draft revised code” to be released by ICA for consultation by October is anyone’s guess. 

We suspect the final code will retain Mr Enright’s stronger emphasis on financial hardship, which was a major issue for consumer groups in the first consultation phase – and will agree to such minor alterations as the extension of a post-catastrophe claim review from six months to seven.

However, much of what he has framed in the draft code is tied to the role of the CGB, so in light of the industry’s determination to keep the code’s oversight and development strictly in-house, it will be interesting to see what survives, what is modified and what may be altered beyond Mr Enright’s basic intent.

There is, however, one point Mr Enright makes that will not be refuted. He believes the general insurance industry is suffering from regulatory exhaustion.

He says it has been through “more than two decades of constant regulatory change in prudential and consumer protection or market conduct regulation. The number of reforms attempted simultaneously over a long time has stretched the resources of all stakeholders.

“It is time, in my view, for a reassessment of the business of regulation.”

The next code review process provides an opportunity for professionals at all parts of the industry to have their say. Mr Enright’s review is recommended reading.

The code review report can be downloaded here.