The Insurance Council of Australia (ICA) is preparing its response to the Hayne royal commission’s “policy questions” document, which was published last week following the insurance round of hearings.

Commissioner Kenneth Hayne also released his interim report on Friday, condemning the “greed” which led to misconduct, but this does not incorporate the insurance hearings.

As reported in a Breaking News bulletin last week, the insurance policy questions document highlights a range of potentially significant regulatory reforms, and submissions can be submitted before 12 noon on October 25.

The royal commission asks whether the current regulatory regime for insurance is “adequate to minimise consumer detriment” – tackling disclosure, sales, add-on insurance, claims handling, regulation and compliance.

One question that is highly relevant for insurance brokers – whose activities were not examined in the public hearings – relates to the ways in which brokers are remunerated.

The document questions whether “monetary and non-monetary benefits given in relation to general insurance products” should remain exempt from the ban on conflicted remuneration.

It also asks whether there are some financial products that should only be sold with personal advice.

The Insurance Council told insuranceNEWS.com.au it is “reviewing the questions that relate to general insurance” and preparing its submission.   

“ICA is focused on considering practical measures that improve consumer outcomes while also allowing the industry to appropriately price risk for customers,” a spokesman said.

On regulation, the document asks whether a failure to comply with the General Insurance Code of Practice should constitute a failure to comply with financial services laws, and questions the purpose of infringement notices.

And it asks whether there is “sufficient external oversight” of compliance systems, and whether there should be greater consequences for financial services entities that fail in this area.

The current disclosure regime is also highlighted, questioning whether it is “adequately serving the interests of consumers”.

“If not, why not, and how should it be changed?”

The document asks whether the standard cover regime is achieving its purpose and whether there is scope for insurers to make greater use of standardised definitions of key terms in insurance contracts.

A ban on the sale of add-on insurance by motor dealers should be considered, or alternatively if it should only be sold under a deferred sales model. It asks whether any other types of insurance should only be sold under this model.

The document considers giving the Australian Securities and Investments Commission jurisdiction on claims handling.

It also asks whether the code should be amended in relation to cash settlements to force insurers to act fairly and ensure policyholders are indemnified against the loss insured.

And it questions why unfair contract term protections should not be applied to insurance contracts, and whether 2013 amendments to the Insurance Contracts Act “resulted in an ‘avoidance’ regime that is unfairly weighted in favour of insurers”.

In the interim report, Commissioner Hayne says the commission’s work so far “has shown conduct by financial services entities that has brought public attention and condemnation”.

“Why did it happen? What can be done to avoid it happening again? These are now the key questions,” he says.

In terms of the first question, Commissioner Hayne has a clear answer. “Too often, the answer seems to be greed – the pursuit of short-term profit at the expense of basic standards of honesty.”

And he believes the punishment has not always matched the crime.

“When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done.”

As to what should be done about it, there is not yet a clear path ahead. Commissioner Hayne appears to be against imposing new legislation, arguing that much of the misconduct uncovered was already “contrary to law”.

“Passing some new law to say, again, ‘do not do that’, would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain?”

He asks whether existing law should be administered or enforced differently.

“Is different enforcement what is needed to have entities apply basic standards of fairness and honesty?”

Submissions to the interim report can be made before 5pm on October 26.

Round seven, starting on November 19, will focus on policy issues raised by the first six rounds, and the commission’s final report will not be submitted to the Government until early next year.

The debate over disclosure – see Analysis