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Counting the consequences after a withering week

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As the dust settles from last week’s general insurance hearings at the Hayne royal commission, it’s still too early to know what the long-term impact might be.

The assault is not over yet – a report on “questions arising” from the insurance round of hearings will be published on Friday, and round seven, starting on November 19, will focus on policy issues raised by the first six rounds, potentially including insurance.

But while the commission’s final report will not be submitted until February next year, it is possible to draw some early conclusions from what we saw last week.

As one industry insider told before the hearings started, it was always going to be bad. And so it was.

But there may be some consolation in the fact that general insurers’ executives generally fared better – or at least less badly – than their life industry counterparts.

Not that this should provide general insurers with any feeling of relief. Ordinary people don't differentiate between the various types of business that gather together under the umbrella word “insurance”.

Allianz emerged battered and bruised after being put through the wringer over a series of errors allowed to remain on its website for up to six years. It is not known how many policies were mis-sold as a result.

When Counsel Assisting, Rowena Orr, began her questioning it seemed as if it might be a relatively minor issue – but as she cut to the core of the matter it became anything but.

Allianz was accused of failing to report serious breaches to the Australian Securities and Investments Commission (ASIC), attempting to have critical independent reports altered or withdrawn, and admitted failing to give compliance the resources or priority it required.

Essentially, Ms Orr said, Allianz put profit before customers.

Next up was IAG, in the dock for its subsidiary Swann Insurance’s sale of add-on policies. As bad as it is, the add-on issue has already had significant airtime, the industry has been active in working with the regulator to devise some acceptable solutions and remediation is already well underway.

So while revelations about the junk products, IAG’s inappropriate incentives scheme and its delayed response were damning, the insurer had been given plenty of time to prepare a polished and convincing mea culpa.

Youi was put on the spot by two of its customers, who appeared before the royal commission to detail a disastrous series of events that left them vulnerable and exposed.

Repairs to the claimant’s properties were botched, with incompetent builders used and complaints brushed off as “over-dramatising”.

An internal review of Youi’s complaints process found it to be non-compliant and requiring significant improvement.

Such issues do not appear to be confined to the so called “challenger brands”. Ms Orr also tore into Suncorp for similarly mishandling claims after natural catastrophes.

The insurer apologised unreservedly for leaving a vulnerable family in an unsafe property and trying to fob them off with a cash settlement way below their proper entitlement.

And it may not have been a one-off. The royal commission heard that in 2016 the Financial Ombudsman Service (FOS) determined Suncorp had “definite systemic issues” with complaints handling, claims handling and responding to FOS determinations.

All four insurers potentially face multiple findings of misconduct against them. There were repeated breaches of the General Insurance Code of Practice and the duty to act with “utmost good faith”.

In fact, as Insurance Council CEO Rob Whelan admitted, since July 2014 the code governance committee had determined breaches in 33 cases, code signatories had conceded breaches during an investigation 689 times, and there had been self-reporting of some 31,000 incidents.

But none of the sanctions available were applied. Not one.

The evidence outlined at the commission will surely have damaged consumer confidence and compromised industry arguments against greater regulation and unfair contract terms carve-outs.

There were shocking stories of mishandled claims, a worryingly slapdash approach to compliance, a disturbing attitude towards criticism and complaints, and a lack of consequence for code breaches.

But perhaps the over-riding image of the insurance hearings comes from the life insurance side – the replayed call from a Freedom Insurance salesman fixated on forcing through a life policy for a young man with Down Syndrome who neither needed nor understood what he was buying.

So while general insurers have reason to regret appallingly mishandled claims, incomprehensibly awful attitudes to claimants’ rights, systemic issues that simply shouldn’t exist and a compromised code of practice, the hearings exposed a life insurance industry whose behaviour was far, far worse.

Life insurers’ callous cold-calling, taking premiums from dead customers and spying on the mentally ill (to name a few issues) are worse by an order of magnitude. That’s why the life industry took the bulk of the negative headlines – and may therefore take the bulk of the consequences.

• A live blog was published by during the general insurance commission hearings last week.

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