DEEP DIVE: General insurance Code compliance improves, but more to be done

While insurers comply with their obligations under the General Insurance Code of Practice (Code) in most circumstances, there are important opportunities for improvement. That’s according to Jared Orth, Senior Manager Code Compliance and Monitoring for the General Insurance Code Governance Committee (CGC).

“In the past year, across almost 43 million insurance claims there were roughly 67,000 breaches of the Code reported, down 13% from last year. However, we also saw complaints increase by 18% to 1.4 million.”

Orth says the Code represents “a real commitment by insurers to meet community needs and expectations, and the standards that are expected of them.”

However, he adds that the two recent inquiries into insurers’ responses to the 2022 floods, one from the Insurance Council of Australia and the other, a parliamentary inquiry, have seen the industry fall short of those expectations.

“The current review of the General Insurance Code of Practice is an opportunity for insurers to raise standards and better serve the community,” he says.

Spirit of the Code

At its heart, the Code commits insurers to be “honest, fair, efficient, transparent and timely in their engagements with consumers.

Orth says the Code Governance Committee (CGC) is starting to see signs that subscribers are lifting their performance by embedding these values into their processes.

The CGC oversees compliance with the Code and plays an active role in identifying risks, highlighting best practices, and guiding insurers toward better outcomes.

The Code is periodically reviewed and updated to meet evolving needs, and the industry is currently considering 101 recommendations for changes made by an independent panel.

Orth argues that while the recent parliamentary flood insurance inquiry identified significant failures, it also shows a vote of confidence in the Code and the CGC’s ability to drive meaningful change in the industry.

“Of the flood inquiry’s 86 recommendations, 29 proposed amendments to the Code, almost 50% of the total recommendations are directed towards the Insurance Council of Australia or the Code itself,” Orth asserts.

“This demonstrates the importance of the Code and is a sign that the Standing Committee sees the critical role it and the CGC can play in improving and lifting industry standards.”

Everything matters

Orth is also seeing a shift in the way that some insurers think about the function of compliance. “Encouragingly, some insurers are taking a more principles-based approach, focused on the intent and spirit of the Code, rather than strict legal interpretations and rules.”

Interestingly, Orth observes that some insurers that may previously have taken a superficial approach to certain “low-risk” aspects of compliance realise “everything matters”.

“They're starting to see that something small, such as a once-off email or minor interaction with a customer, can be the source of many of the complaints they receive and that go to AFCA. Focusing on good communication with customers could help avoid the escalation of these issues.  

In addition, at an industry level, Orth says insurers are increasingly aware of the effects of a damaged reputation.

“There’s real value for insurers to work on reputation, and in some cases, repair relations where things have gone wrong,” he says. “It’s a chance to distinguish their customer service and stand out from others.”

While the CGC sees tens of thousands of breaches reported each year, Orth says the fact that such failures are being reported in an open and transparent way gives him confidence that insurers recognise their obligations and are willing to be held accountable.

“We see some really promising signs that a number of insurers understand their obligations better and have improved their ability to identify potential issues throughout their business,” he says.

Enforcing the Code

One notable challenge, however, is the Code’s current lack of direct legal enforceability. Orth acknowledges this limitation but points to the CGC’s power to intervene.

“While it’s true there’s no legal penalty for breaches, we have the ability to investigate and impose sanctions that require insurers to remedy and compensate affected customers, to make community benefit payments, or to publicly acknowledge the issue,” he says.

“The ability to name and hold an insurer accountable is significant,” says Orth. “But in many cases, it doesn’t require a formal sanction — insurers are willing to work with us to resolve issues.

“That said, we will not hesitate to consider sanctions, though, when the non-compliance is significant and has resulted in or is likely to result in serious detriment to consumers.”

To strengthen the Code, Orth supports embedding its commitments into consumer contracts.

“Making it mandatory for insurers  to function according to the principles of the Code as part of a legal agreement with consumers would improve its enforceability significantly,” he says.

He adds that training staff is another important aspect to consider. “It's necessary to have a compliance team in charge of monitoring and identifying issues,” he says, “but it's even better if those obligations are embedded deeply into the culture of the business.

"We want to see claims-handling staff that understand their responsibilities and their commitment to customers. And if they're falling short, it needs to be raised and unpacked.”

Meeting timeframes for complaints and claims

Orth says insurers continue to face issues with required timeframes for assessing a complaint, and the time between receiving a claim and updating customers on its progress.

“We see high levels of breaches of those obligations, which makes sense because they're strict timeframes. This makes it easier to measure when something goes wrong, but it does not diminish the obligation,” he says.

However, Orth says the CGC recognises that the sheer volume of complaints and claims can be a challenge for some insurers, especially in the event of a natural disaster.

He says improvements are being made, especially where insurers are reviewing their claims processes in depth.

“We have seen improvements in timeliness and customer outcomes when insurers undertake end-to-end analyses of claims processes. They are able to identify where the pain points begin and deal with them faster,” he says.

With a good deal of improvement required across the industry, Orth says the CGC recommends all insurers undertake an analysis of their processes.

Identifying the vulnerable

In the past year, the CGC has seen reported breaches relating to identifying and supporting customers experiencing vulnerability more than double.

While this partly reflects the increased number of consumers in financial difficulty and other types of  hardship, Orth says it also points to the need for insurers to improve their methodology.

“We've spoken to insurers that have made improvements to their processes for identifying vulnerable customers and, in doing so, found multiple instances where vulnerable customers had been missed,” he says.

“This caused a spike in reported breaches, and we hope to see the number drop in the future as the industry keeps getting  better at identifying vulnerable customers.”

With 39 of the Code review recommendations addressing vulnerable customers and financial hardship, Orth points to an opportunity to elevate industry standards and better tailor support to individual needs, which can vary significantly. “It can’t be a one-size-fits-all approach,” he explains.

It is expected that once the new Code is finalised, the industry will seek approval by ASIC which Orth believes would strengthen its credibility and enforceability. If that is the case, Orth anticipates the revised Code will be implemented some time in 2026.

Many insurers will no doubt be preparing for the changes ahead of the Code’s implementation.

Managing underreporting

Meanwhile, the CGC continues to explore areas where reporting gaps and inconsistencies could undermine trust in the industry. A particular concern involves smaller insurers that may underreport breaches, as well as larger insurers with gaps in reporting that could impact tens of thousands of policyholders.

"We will be engaging closely with insurers we suspect are under-reporting as it not only affects transparency but also creates an uneven playing field. We’re focused on doing what we can to address this."

For Orth, communication is the cornerstone for improvement in the industry. As a panel speaker at this year’s (2024) General Insurance Breakfast, he'll make this point a key takeaway for participants.

“There’s an incredible opportunity to improve outcomes simply by communicating better with customers, setting clear expectations, and keeping them informed throughout the claims process,” he says. This includes addressing disconnects between consumer expectations and policy terms before claims are made.

“Misaligned expectations often arise where customers don’t fully understand what their policies entail,” he says.

"The way insurers communicate with customers — setting clear expectations from the start — can completely transform their experience. Even small changes in how we explain policies can prevent misunderstandings and build trust."

Hear Jared Orth speak at the General Insurance Breakfast