Insurers are taking a liberal view of the industry’s Code of Practice, with nearly half of those reviewed by the Ombudsman last year found to have breached the code.

The updated code of practice takes effect this week – the first review in nearly three years – and consumer groups are troubled by a “lack of transparency” in how alleged breaches are investigated and reported.

Most of the changes to the voluntary code are cosmetic and relate to certain wordings around financial hardship. Consumer advocate lawyer Denis Nelthorpe says the Insurance Council of Australia (ICA) missed an opportunity to improve the self-regulatory system.

“If the Insurance Council makes the decision they don’t want a more transparent code, then it would hardly be surprising if a whole bunch of members decided not to take it too seriously,” he told insuranceNEWS.com.au.

“If ICA wants its members to take the code seriously it has to ensure the code is fully transparent and breaches are scrutinised effectively.”

While he says the new code has some improvements, “it still lacks transparency in terms of its reporting. And that is major concern for all the consumer groups.”

The Financial Ombudsman Service (FOS) has revealed 52 of the 108 companies reviewed in 2008/09 failed to comply with the code.

FOS investigated 151 matters in fiscal 2009, finding members had failed to comply with aspects of the code in 71 cases.

Mr Nelthorpe, a former complaints committee member until 2008, says most breaches are technical and involve smaller underwriters.

FOS spokesman Carol Stuart says none of the breaches were “significant”, with many relating to claims and complaints-handling procedures.

She told insuranceNEWS.com.au the body has powers to investigate and penalise companies for breaches, but none to impose fines.

“Where we identify a breach of the code, we work with the code member to identify and implement the appropriate corrective action,” she said. “If a code member refuses to co-operate, we are required to report the matter to an independent Code Compliance Committee.”

The committee can order an insurer to take steps to rectify an identified problem, undertake an audit, print a correction or publicise an instance of non-compliance.

But Mr Nelthorpe says penalties must match the nature of the breach. Small technical breaches based on faulty paperwork cannot be lumped into the same categories as systemic failings that are uncovered during a complaint hearing.

About 90% of general insurers are signatories to the code, including 80% of ICA members. However, many overseas-based companies have declined to sign the code.