The independent panel reviewing the General Insurance Code of Practice has proposed doubling the maximum financial sanction for significant breaches to $200,000, to provide a stronger deterrent.

Currently, sanctions include a community benefit payment of up to $100,000, but the panel says in an initial report released today that several review submissions argue this does not effectively promote compliance.

“The review panel agrees that the maximum community benefit payment should be materially increased, and suggests doubling the maximum amount,” it says.

“It should also be indexed annually, to ensure it maintains value. As stated by KPMG, the sanction should not be seen as a cost to comply, as opposed to a deterrent.”

The report says the Code Governance Committee should publish insurer names in regular compliance and data reports and produce “leader board information” at an individual insurer level when undertaking thematic reviews, to provide additional transparency on better compliance practices and where improvement is needed.

The initial report’s 101 recommendations include proposals to improve code measures on financial hardship and customer vulnerability, and addressing issues including claims handling time frames, the use of cash settlements and expert reports. 

It is proposed that all parts of the code additionally apply to small business, as defined in Australian Financial Complaints Authority rules, with the code “decoupled” from the legislated definitions of retail client, wholesale client and general insurance products.

The code review panel is chaired by former Australian Prudential Regulation Authority deputy chair Helen Rowell and includes consumer expert Gerard Brody and industry representative Paul Muir.

“There is an exciting opportunity to uplift and enhance protections and supports for individual and small business consumers, and my co-panellists and I look forward to working with the insurance industry on its response to our recommendations,” Ms Rowell said.

The second phase of the review will assess feedback on the report and consider information, insights and recommendations from the federal parliamentary inquiry into insurers’ handling of claims from the record 2022 floods. The code review panel plans to release another consultation paper towards the end of the year.

The Insurance Council of Australia says it will undertake a detailed review of the panel’s interim recommendations and engage with members and key stakeholders to prepare an industry response. 

Other recommendations in the report include that when a claim decision has not been made within 12 months – and the delay is not due to the consumer or reasons beyond the insurer’s control, such as a complaint being lodged with AFCA – the code should require that the claim be accepted.

A never-activated time extension for “extraordinary catastrophes” should be removed, routine inquiry responses made within three business days and “meaningful” updates provided every 20 business days, which may be via SMS or in-app alerts if that is the customer’s preference.

Before offering cash settlements, insurers should consider individual circumstances and whether a customer can carry out the repairs, and the policyholder should be able to request a review of the amount within 12 months of the settlement if it proves insufficient due to unforeseen circumstances. 

The proposals strengthen requirements around the use of expert reports and recommend that the code mandate compliance with ICA’s recently released best practice standard.

The code should require expert reports in a standardised format to improve understanding, and where “wear and tear” and “reasonable maintenance” are issues, the reports should clearly explain how the consumer’s failure to maintain the property significantly contributed to the resulting loss or damage.

The initial report is available here.