The independent panel reviewing the industry code of practice has pressed ahead with reform proposals targeting many of the problems highlighted during the federal flood inquiry.

The review’s terms of reference had suggested the initial report would focus on topics unrelated to the floods, which would then be addressed in the second phase of the code update process.

But the lines are not so clear cut, and the initial report released on Friday includes recommendations on vulnerability, claims handling time frames, use of expert reports and cash settlements, which have all been critical issues in flood inquiry submissions and hearings.

The interim report’s sweep is extensive, with 101 formal recommendations listed in the appendix, while several other proposals effectively boost the total. By comparison, the previous code review made 30 recommendations.

Recommendations are grouped under: financial hardship; customer vulnerability; the code and the law; other parts of the code; emerging issues; and code structure enforceability and governance.

The “other parts” section contains 38 recommendations, including that an insurer must have effective systems to monitor the conduct of all claim service suppliers appointed by it or acting on its behalf.

Insurers should have to ensure that sum insured calculators are accurate and up to date, and unanticipated additional costs, such as debris removal and architectural fees, should not be included in the sum insured for repairs and rebuilds but included as benefits over and above.

Before offering a cash settlement, insurers should have to consider a consumer’s circumstances to determine whether they are likely to be able to carry out repairs.

This code review process still has some way to run.

The final report will consider feedback received and findings from the federal parliamentary flood inquiry, which is due to report by October 18, and drafting of the final document and approval from the Australian Securities and Investments Commission will take time. 

Financial Rights Legal Centre senior policy and advocacy officer Drew MacRae says issues flagged in the flood inquiry and the code review are well understood and urgency is required.

“We know what the problems are and we know what the solutions are, and the independent review was able to identify the changes that are required now,” he said. “My expectation is that there will be a lot of alignment between what this report has put forward and what the floods inquiry will say.”

Once the independent review is completed, the Insurance Council of Australia and its members will decide how many of the proposals make their way into an updated code of practice.  

Mr MacRae says code changes adopted by industries typically fall short of independent review recommendations, but ICA should commit to the changes outlined in the initial document.

“My challenge to ICA is to accept all the recommendations in this report to ensure the insurance sector really does lift its game,” he said. “Otherwise, we are going to be here again in a few years and another inquiry may come, and a royal commission may come. They need to act now.”  

The flood inquiry’s code of practice criticisms have included not only that its requirements need strengthening, but that breaches carry insufficient repercussions that are not effectively enforced.

The code review has proposed the maximum financial penalty should be doubled to $200,000, insurers should be named in data and compliance reports, and the code should be incorporated into customer contracts.

It remains to be seen to what degree insurers will be allowed to self-regulate following the flood inquiry findings, given the heightened pressure the sector faces.

A recent Financial Counselling Victoria report, for example, says strengthening the code of practice to define limited circumstances in which cash settlements are acceptable will not solve the growing issues such settlements create.

ICA notes that alongside the code review, it has engaged in initiatives to address key issues, including commissioning the Deloitte report into the floods, releasing expert reports best practice guidance, and industry fact sheets.

CEO Andrew Hall says ICA appreciates the thorough work of the independent panel and the constructive recommendations in the interim report, as the sector strives to align with industry and consumer expectations.

“We are committed to continuous improvement to deliver better outcomes for customers,” he said.

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