Insights

In brief - General insurers should consider possible impact of committee's recommendations on claims handling processes

The Parliamentary Join Committee on Corporations and Financial Services released its report on 27 March 2018. While principally dealing with life insurance, it has made some recommendations that will, if implemented, cause significant changes in how general insurers manage claims.
 
The report was issued against the background of widespread consumer dissatisfaction in respect of financial services generally, which has led to the Royal Commission into the Misconduct in the Banking, Superannuation and Financial Services Industry which is currently conducting hearings. Some public submissions (yet to be made public) relate to general insurance.
 
The recent Productivity Commission into Competition in the Australian Financial System draft report considered general insurance and made various recommendations relating to product innovation, product differentiation, consumer education and the deterrent effect of stamp duties. The Australian Competition and Consumer Commission is conducting a Northern Australian Insurance Inquiry into home, contents and strata insurance in Northern Australia.

Recommendations may affect section 15 of Insurance Contracts Act and Corporations Regulation 7.1.33

The Committee expressed dissatisfaction with the exemption of life insurance contracts from the general consumer protection regime for non-financial services and notes that section 15 of the Insurance Contracts Act 1984 is "no longer credible".
 
Section 15 provides:
 
(1)  A contract of insurance is not capable of being made the subject of relief under: 
                     (a)  any other Act; or 
                     (b)  a State Act; or 
                     (c)  an Act or Ordinance of a Territory. 
"Relief" is defined in subsection 2.
 
Of note is that the Committee considers that general insurance should also be brought into the general consumer protection regime in Australia. 
 
It seems that the safe harbour for insurers created by section 15 of the Insurance Contracts Act has a limited life.
 
The Committee also recommended that the government review Corporations Regulation 7.1.33 to consider whether the exemption of insurance claims handling processes should continue.
 
Regulation 7.1.33 provides that a recommendation or statement of opinion provided in the course of, and as a necessary or incidental part of the handling or settlement of claims or potential claims in relation to an insurance product is a circumstance in which a person is taken not to provide a financial service within the meaning of section 766A(1)(a) of the Corporations Act 2001.
 
Significantly, the Committee noted that voluntary codes of conduct are generally ineffective in terms of consumer protection.
 
The effect of the recommendations (if enacted) will mean that general insurers will be met with a whole range of allegations if they decline indemnity, or only partially grant indemnity, including:
 
Further ASIC may seek to use the proposed product design and intervention powers if there are product-specific issues relating to policies, including loss ratios that are considered to be too low as to provide good value.
 
The removal of the exemption for claims handling would mean that general insurers would be liable to ASIC information and document gathering powers, reporting in respect of claims handling, and (importantly) sanctions below the licence conditions level.

What should general insurers do?

General insurers should monitor the response to the Committee's recommendations, even though the Committee deals primarily with life insurance. They should consider reviewing claims handling manuals and protocols now.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​