In an exercise that took longer than usual to complete because of the COVID disruption, Australia’s insurers finally have a new code of practice in place – one that has been comprehensively updated and rewritten to provide for much-improved consumer protections in the post-Hayne royal commission landscape.

The deadline for implementing the bulk of the updated code was put back by six months to July 1 to allow the industry to focus on dealing with the pandemic.

The revised General Insurance Code of Practice – the fifth update since its introduction in 1994 – replaces the 2014 version and is significantly different on many fronts.

Apart from requiring signatories to the code to have a family violence policy and other measures to support vulnerable customers – requirements that were actually enacted in July last year – the independent body that monitors and enforces compliance is now armed with powers to impose tougher sanctions for significant breaches.

These sanctions include a penalty of up to $100,000. Termed a “community benefit payment”, the size of the penalty will be set in proportion to the errant insurer’s gross written premium and number of customers.

The committee’s arsenal of new sanction powers for significant breaches also allow it to order the insurer to compensate an individual for any direct financial loss or damaged suffered as a result of the non-compliance.

In other notable changes, the governance committee’s decisions and sanctions are now binding, with the committee also empowered to report significant breaches or serious misconduct to the Australian Securities and Investments Commission.

While it remains self-governing, key industry executives and consumer advocates say the updated code, in particular the support measures for vulnerable customers and the $100,000 penalty deterrent, are what the industry needs to move forward in the wake of the Hayne royal commission inquiry into financial sector misconduct in 2018.

“Nothing works better than knowing there’s a real consequence rather than an unknown consequence,” Steadfast CEO Robert Kelly told insuranceNEWS.com.au.

“You've definitely got a code [that will] smarten up the industry. A strong code means the industry is going to be strong for the consumers.”

Consumer Action Law Centre CEO Gerard Brody says the new sanctions powers are a “really positive step” for the code.

“I think the code is really a significant step forward for the insurance industry,” Mr Brody told insuranceNEWS.com.au. “It definitely has a bit more bite in terms of those sanction powers.

“I think it’s important that the code governance committee now uses those powers when it sees breaches of the code.”

Here are the key updates in the revised code:

Making a claim (Part 8 of the code):

If cash settlements are offered under a home building policy, insurers must provide customers with information explaining how the payouts work and how decisions are made.

If a scope of works is needed for a building claim, claimants must be provided with information to help them understand how the process works and its purpose.

Supporting customers experiencing vulnerability (Part 9):

Specific provisions have been developed to help customers who may be facing vulnerability due to a range of factors such as disability, mental health conditions, financial stress and language barriers.

Where mental health is concerned, subscribers will treat customers with any past or current mental health conditions fairly and ask only relevant questions when deciding whether to provide cover for a pre-existing condition.

Enforcement, sanctions and compliance (Part 13):

The Code Governance Committee may impose additional sanctions for significant breaches, including requiring subscribers to do any one or more of the following:

• Compensate an individual for any direct financial loss or damage suffered as a result of the breach
• Publish it has committed a significant breach
• Pay a community benefit payment of up to $100,000.

The Code Governance Committee will report significant breaches or serious misconduct to the Australian Securities and Investments Commission.

The Australian Financial Complaints Authority may also report possible code breaches to the Code Governance Committee.

The committee’s decisions and sanctions are binding on subscribers.

Claims investigation standards (Part 15):

Mandatory standards for claims investigators have been introduced. Contracts with external investigators will set out standards for how they must conduct themselves and what they need to do when investigating people who may be vulnerable.

If an investigator is appointed, subscribers must provide them with written instructions about each investigation and confirm any changes to instructions.

Investigators are to prepare or retain contemporaneous records in writing of all investigation activities.

Click here for the full code.