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Royal commission submissions: a summary

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The Hayne royal commission website has been flooded with hundreds of submissions in recent days.

Responses to the insurance policy questions document could have vital repercussions for the industry, but it’s not easy to cut through a very broad mix of opinions, defensive statements, explanations and even cautious agreements.

In summarising consumer, regulator and industry reactions to the key questions, we’ve highlighted the most pertinent points answering the royal commission’s questions.

Is the current regulatory regime adequate to minimise consumer detriment?

Consumers: It’s a clear no.

As an example, consumer group Choice says the evidence presented to the commission “clearly illustrates the current regulatory regime is failing to protect consumers”.

“These failings have created systemic problems in the industry that can only be addressed through significant reforms. This should include a decisive move away from self-regulation and towards a model that involves more direct regulatory involvement and oversight.”

Regulators: The Australian Securities and Investments Commission (ASIC) says no, but specifically references concerns in the life insurance sector. The Australian Prudential Regulation Authority (APRA) only answers questions relevant to its role, so offers no opinion.

Industry: The Insurance Council of Australia (ICA) sits on the fence.

While the regulatory regime “provides extensive protections for consumers”, it says the emphasis on product disclosure is “misplaced” given low financial literacy levels.

The National Insurance Brokers Association (NIBA) accepts there is “room for improvement”, but says a “major shift is not justified”.

Is the current disclosure regime for financial products… adequately serving the interests of consumers?

Consumers: A unanimous no.

“It is now well established that insurance disclosure, through product disclosure statements (PDS) and key fact sheets, is ineffective,” the Consumer Action Law Centre says.

Regulators: ASIC says no, and borrows a line from ICA, saying there is an “over-reliance on disclosure as the mechanism to address a wide range of product and conduct problems”. APRA doesn’t comment.

Industry: ICA also gives a clear no, but says a solution won’t be easy to find.

“Providing information at the right time and in a manner likely to be comprehended and useful for decision-making is a complex challenge, and the solution is unlikely to be in the form of more mandated disclosure,” it says.

NIBA asks how far an insurer should have to go to protect consumers from themselves.

“Statements are being made at present that insurers should ‘meet customer needs and expectations’ that are too broad. Disclosure documents, no matter how clear or concise, will not protect a consumer that does not read them or if financial literacy is an issue.”

Is the standard cover regime… achieving its purpose?

Consumers: Consumer groups say the standard cover regime is failing.

“Insurers have met the letter but not the spirit of the regime,” the Financial Rights Legal Centre says. “In practice, all insurers contract out of the provisions, rendering them pointless, and consumers don’t know what is standard and what is not.”

Regulators: ASIC says no, because insurers aren’t using it.

“In ASIC’s view, insurers deliberately circumvent the application of standard cover by utilising the opportunity provided by the Insurance Contracts Act.”

Industry: ICA says the standard cover regime is unlikely to be achieving its purpose, and supports a review.

NIBA says “the provisions are out of date” and suggests a government review “should resolve the issues after proper consultation with stakeholders”.

Should monetary and non-monetary benefits given in relation to general insurance products remain exempt from the ban on conflicted remuneration?

Consumers: Consumer groups are pushing hard here.

“Nothing short of a total prohibition on conflicted remuneration will remove the risks of poor consumer outcomes,” the Financial Rights Legal Centre says.

The Consumer Action Law Centre highlights the sale of add-on insurance through motor dealers and various types of general insurance through bank branches as “clear examples for removing the exemption”.

Regulators: ASIC backs an extension of the ban.

“ASIC considers that a ban on conflicted remuneration could encourage insurers to achieve sales through better engagement with consumers, leading to the development of improved sales methods because they would not be able to rely on the payment of commissions to intermediaries.”

Industry: NIBA and ICA are in strong agreement that extending the ban across the general insurance sector would have a disastrous impact on brokers.

This is the “key issue” for NIBA and its submission lists dozens of reasons not to proceed.

Should the sale of add-on insurance by motor dealers be prohibited?

Consumers: Consumer groups favour a ban.

“The profits of insurers and car dealers – not customer need – are the rationale for the car yard add-on insurance market,” the Consumer Action Law Centre says.

Regulators: APRA says its “preference” is not to ban products, but strong product intervention powers are necessary.

ASIC “supports the implementation of the design and distribution obligations and the product intervention power, which will likely limit the sale of unsuitable products and in exceptional circumstances may require a product to be banned”.

Industry: ICA says no, because “policymakers should not constrain consumer choice by prohibiting the sale of certain products”.

NIBA says such products should not be prohibited “if they provide value to relevant target markets”.

Should ASIC have jurisdiction in respect of the handling and settlement of insurance claims?

Consumers: Consumer groups are united in moving this issue forward.

“If insurance claims handling was brought within the Corporations Act definition of ‘financial service’, ASIC would have greater remit over claims handling,” the Consumer Action Law Centre says.

Regulators: APRA says it “supports ASIC having jurisdiction over handling and settlement of claims, and supports obligations on insurers to undertake these functions efficiently, honestly and fairly”.

ASIC says its “powers in relation to the regulation of insurance products should cover claims handling and settlement”, and considers its current powers under the Insurance Contracts Act are limited.

Industry: NIBA and ICA believe ASIC already has powers to regulate conduct in relation to claims handling under the Insurance Contracts Act and the duty of utmost good faith.

Should a failure to comply with the General Insurance Code of Practice or the Life Insurance Code of Practice constitute a failure to comply with financial services laws?

Consumers: The Financial Rights Legal Centre says a failure to comply with either code “should lead to serious consequences including enforceable sanctions, civil penalties and administrative action”.

But the Consumer Action Law Centre holds back.

“As a general principle, our view is that codes of practice should lift industry standards above the law, and not be a substitute for regulation,” it says.

“Industry codes are largely authored by industry participants themselves, therefore we do not support them being given the force of law per se.”

Regulators: ASIC says the issue requires some thought.

“While treating a failure to comply with the… general insurance code as a failure to comply with a financial services law… may have merit and may, in particular, enhance the enforcement of minimum standards across industry, it would mean the code is not a self-regulatory instrument.”

Industry: ICA says a breach of the code should not be treated as a breach of the law, adding: “Such a change will impede industry efforts to strive for higher standards of self-regulation.”

NIBA says it supports self-regulation and “does not support this proposal”.

If you’d like to wade through the submissions yourself, you can access them here.