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Taking stock: a mid-year regulatory round-up

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Memories of last year’s royal commission hearings may already be fading, but there’s no chance Commissioner Kenneth Hayne’s recommendations have been forgotten.

Changing regulations, systems and corporate cultures is always slow work, with a host of royal commission reforms – and others besides – waiting in the wings, it can be easy to lose track or where everything is at.

Australian Securities and Investments Commission (ASIC) Chairman James Shipton highlighted progress on some focus areas in a major speech last week in Melbourne.

Here’s our update on some of the key regulatory reforms likely to affect general insurance.

Commissions

Leading up to the publication of the royal commission’s final report early this year, the question of commissions for general insurance intermediaries was the one getting all the attention – and more than a little fear.

Would shining a light on ugly-looking commissions in niche areas such as add-on cover lead to a wider ban on “conflicted remuneration” across general insurance?

The answer was no – or at least, not yet.

Commissioner Hayne decreed the issue will be tackled by a further review in three years and not much has happened since, apart from everyone getting their arguments straight.

Submissions to the latest Australian Competition and Consumer Commission report on insurance affordability in the north – which somehow thought banning general insurance commissions in the region would solve premium affordability problems – gave the insurance industry a chance to be appalled and consumer groups the opportunity to applaud.

The National Insurance Brokers Association (NIBA) has launched a project to prove broker value – which could itself take a year to complete.

Claims handling

If the general insurance hearings at the royal commission had a theme, it would be poor claims handling. Looking at the evidence with the dubious benefit of hindsight – or fading memories – general insurance issues looked to be far less horrifying than the sins of the banks and the life side.

Nevertheless, the general insurance examples that did arise were bad enough that Commissioner Hayne recommended a number of changes, including suggesting an end to the exclusion of insurance claims handling from the definition of “financial service”.

This would give ASIC greater oversight and enforcement power.

Treasury consulted on the matter, with the Insurance Council of Australia (ICA) broadly supportive but warning the devil is in the detail.

The Government is yet to act on the consultation and has not published submissions.

Design and distribution legislation

These laws, placing new obligations on insurers and distributors, were passed by the Federal Parliament in April – but it’s still not clear how they’ll work.

ICA says serious concerns about how the rules will apply to mass-marketed financial products, such as home and contents or motor insurance, have not been addressed.

It says it will meet ASIC to discuss how regulatory guidance might resolve its members’ concerns.

ASIC also last week began a consultation on its new product intervention power, which allows the regulator to take temporary action if it sees the potential for significant consumer detriment.

Unfair contract terms

On December 18 2017, the Federal Government announced it would extend the unfair contract terms provision to insurance, and a consultation ended in August last year.

Stakeholder views have been sought, and it is understood Treasury is finalising legislation.

ICA has argued until it’s blue in the face that consumers are already well protected under the Insurance Contracts Act, but then bowed to political and public pressure and is now “willing to explore a solution that works in the interests of all stakeholders”.

However, the insurers’ peak body remains “seriously concerned” about some aspects of the proposed changes, and suggests a standalone set of unfair contract terms protections be introduced in the Insurance Contracts Act.

Disclosure

A government consultation on disclosure in general insurance was completed in February and sparked a number of submissions.

ICA released its “disclosure action plan”, and both it and NIBA agree the current standard cover regime is in need of revision.

This work is crucial to increasing consumer understanding of insurance, because product disclosure statements are increasingly accepted as being unfit for purpose.

Watch this space as discussions continue.

Enforceability of codes

A key royal commission recommendation would see “enforceable code provisions” inserted into documents such as the General Insurance Code of Practice.

A government consultation concluded in April, which will “inform the development of legislation”.

Submissions have yet to be published on the Treasury website, but ICA has made its thoughts known.

It says the code “must preserve the benefits of self-regulation” but its ongoing code review will “ensure the updated code takes into account the key recommendations of the Hayne royal commission”.

Both the General Insurance Code of Practice and the Insurance Brokers Code of Practice are in the middle of reviews.

Internal dispute resolution

ASIC has launched a consultation on new standards for the handling of customer complaints by financial businesses.

Comments can be made before the August 9 deadline. Proposals include tightening timeframes and the collection and publication of complaints data.

ICA says it is important that financial businesses have time to implement any changes, and collection and publication of disputes by the regulator “should be guided by relevant metrics and context”.